A Stitch in Haste

Only don't tell me you're innocent. Because it insults my intelligence, and makes me very angry.
--Michael Corleone, "The Godfather"

Of all the lies that Social Security obstructionists such as Paul Krugman, Angry Bear and the AARP like to repeat, the worst is of course the fraud of the "trust fund" — a piggy bank full of IOUs from yourself to yourself is not a trust fund but a psychosis.

But I'm seeing, with increasing frequency, another lie, one which the apologists use to deflect concern over increasing Social Security taxes, either through tax rates or through the wage cap (which, keep in mind, rises every year anyway).

The "tax lie" goes something like this: "It's no big deal when you pay ever higher Social Security taxes, because those higher taxes in turn earn you higher benefits after retirement."

This claim has always been facially misleading based on the progressive nature of Social Security's benefit schedule: All else equal, a worker who pays twice as much Social Security tax will receive less than twice as much in benefits. So the more Social Security taxes you pay, the more your income is being redistributed to those who pay less tax.

Whether you consider progressive redistribution of income a proper function of government is another topic altogether. The point here is that paying higher Social Security taxes funds other people's benefits more than it funds your own benefits. (And "other people" does not mean intergenerationally — it means people in your own age cohort).

That's old news. But here is where the obstructionists will typically play their shell game of de-emphasizing Social Security's "anti-poverty" goal and instead proclaim the program's "forced saving" aspect. "Don't think about the redistributionist aspect of the program, just focus on the fact that when you pay more taxes, you accrue more benefits."

Okay, let's focus on that.

Everyone who pays Social Security taxes receives an annual Social Security Statement. Mine comes every August, I blogged about last year's Statement here.

This year I focused only on the changes in the promised benefits over the past year. In 2005 I've paid direct Social Security taxes of $5,580 (i.e., the maximum). Based on Social Security's own projections in the Statement, my monthly benefit if I retire at age 62 does indeed increase as a result of my having paid another full year of taxes — by $27.

Using Social Security's own life expectancy tables, I should expect to receive benefits for 174 months (i.e., life expectancy of 76.5 minus retirement age of 62, times 12 months per year). So Social Security forecasts that I will earn an extra $27 x 174 = $4,698.

So, paying taxes of $5,580 this year yields me an estimated $4,698, starting 24 years from now.

You need not be a Chartered Financial Analyst, as I am, to know that this is not "forced savings."

And that $4,698 is not a lump sum at retirement in the same way that, say, a private account would be — it's an annuity, so it's actually worth less than $4,698, even at age 62, let alone at age 38.

In fact, the math works out to a -0.48% annual rate of return on my 2005 Social Security taxes.

And, of course, that number only represents direct Social Security taxes, the money visibly taken out of paychecks under the euphemism of "FICA contributions." That amount, as we all know, is matched dollar-for-dollar by taxes paid my greedy Swiss bank employer. So it actually took $11,160 in taxes last year to yield me that $4,698 24 years from now. That's a -2.43% annual rate of return.

And that's before inflation.

And that's before income taxes on my future Social Security benefits.

And that's before "progressive indexing" (i.e., the Pozen Plan) or any other reform plan that would cut future benefits. Always remember that the benefit forecasts in your Social Security statement are not vested and you have no property interest whatsoever in your Social Security taxes or the "guaranteed" benefits they earn — Congress can change those numbers anytime. See Flemming v. Nestor, 363 U.S. 603 (1960).

"Paternalistically-motivated forced savings for my own benefit?"

Hogwash.

Why is it that unapologetic liberals such as Krugman and Angry Bear suddenly start lying through their teeth about this? If they honestly believe that our unified income taxation sysem (i.e., federal income tax, FICA tax and Medicare tax) are not already progressive enough, then why not just say so? "Sorry, but the poor are still poor, and we now need to redistribute your income to them not only through the income tax but also through the Social Security tax (and don't forget the estate tax)."

If income redistribution is the motivation of Social Security, then fine -- let's keep it about that. Why lie by telling people that higher taxes are "forced savings" for their own benefit when they're clearly not?

Tell me my taxes are going to help the needy working poor. Tell me that Social Security is an unviable failure that I, as a successful American, need to help bail out.

Tell me that Social Security includes several "protective undercoating" bells and whistles that I either don't want (e.g., disability benefits) or can't receive (e.g., spousal benefits that are denied gay couples, even married gay couples).

Tell me that all those surpluses in Social Security taxes have been recklessly squandered by Congress and that the "trust fund" is now nothing more than a promise to raise my taxes in the future.

Tell me that you simply consider someone or something to be more important than my own financial well-being and therefore worthy of my extra tax dollars.

Only don't tell me you're taxing me for my own benefit. Because it insults my intelligence, and makes me very angry.

POST SCRIPT: For those who know their way around an H-P 12c financial calculator, I'd be happy to share by email the inputs for my rate of return calculations.