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  • The End of Social Security As We Know It?

    Barack Obama argues that his tax rebates, many of which will go to households paying no income tax will “offset the payroll tax they pay,” and are, therefore, not welfare. But there are two big problems with this line of argument.

    First of all, Social Security taxes (the main part of payroll taxes, constituting 6.2% out of the total 7.65%) are supposed to go in a special social security trust fund. The program is supposed to play the role of a retirement investment fund, except that some of the wealthier people’s tax dollars go to subsidize a social safety net. People pay what they can, according to how much they are able to work, and some redistribution occurs later, at the time of retirement.

    Refunding the payments low-income workers make into social security at the time of payment bypasses that logic and changes the nature of social security. If Obama wants to change the nature of Social Security and Medicare by exempting low-income workers from payments, this should be laid on the table, not snuck in by quietly refunding payroll taxes. On the other hand, if the program is not being changed – if the workers are still paying in to social security but they just happen to be getting a tax credit – then he can’t cite their social security contributions as taxes which are being refunded. He can’t have it both ways!

    But there is a second problem with this line of argument. Even after accounting for payroll taxes, Obama still adds to the welfare rolls considerably. According to the Heritage Foundation’s tax microsimulation model, Obama’s tax program would increase the number of IRS net recipients by about 24 million per year. Of these, 10 million are net-recipients even after accounting for what they paid in payroll taxes.

    So, 10 million are additions to the welfare rolls that even changing the nature of Social Security and Medicare can’t explain away. Refunds to those who pay no taxes to the IRS (but may pay payroll taxes) would cost Obama about $30 billion per year, according to our microsimulation model. This accounts for about 40% of the cost of the new-credits portion of Obama’s tax plan, and 15% of the cost of his plan overall. In other words, leaving aside the part of Obama’s tax plan which extends some of the current tax rates, and just looking at his new tax cuts, 40% of the cost should actually be classified as welfare spending because it is tax rebates to individuals not paying taxes.

    Posted in Economics [slideshow_deploy]

    6 Responses to The End of Social Security As We Know It?

    1. Pingback: The End of Social Security As We Know It? : thegameoflove

    2. Spiritof76, New Hamp says:

      Obama is a socialist with a penchant for avenging his racial anger. He is finding ways to make "the rich white folks" pay even though it may involve some of the rich black people. If he gets elected and by the time he is finished with the generous help from Congress we wouldn't be able to recognize our country whose foundations rest of minimum government and maximum individual liberty and responsibility. I can not fathom why the country has turned into a bunch of whining, can't do people willing to turn their freedom into government established slavery.

    3. Tom,Scottsdale says:

      I am watching with much personal alarm as we are requiring a smaller number of bad (wealthy) to pay for our government. One commercial for Harry Mitchell has school children showing how easy voting OPM (other people’s money) to cover a varity of wants and needs are.

      Many corporations will seek other countries as home base and outsource labor. Personal savings investment and even retirement of our wealthy citizens will be elsewhere.

    4. Robert.Paul.Isabella says:

      Regarding Social Security, medicare and pensions for various GVT careers, as taxpayers and people who pay/invest in these systems, I find it interesting and somewhat annoying that people refer to social security and the rest as "entitlements." Social Security represents a final line of security for a segment of the population and an additional source of income for other, and, again, we paid and continue to pay for this security. We can all invest additional funds in the markets, real estate…, but efforts to privatize social security defeats the intent, and, as we have seen, may well be less than secure. Why any individuals in our society would question the value of such a system or why elements of our society would have a problem maintaining such a system is a significant question.

    5. Airman Largo says:

      make your own way in life , quite using the govt for a job and a babysitter. do something in life that you dont get paid by the taxpayer. military and govt workers who stay in those jobs for ever cause they cant do anything else. social security is a joke ,do away with it

    6. Billy says:

      The reason I figure Obama is funding the welfare and taking from S.S. is he is supporting the sorry people that won't work and would not work if there were plenty of jobs.

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