Berkeley CSUA MOTD:Entry 35911
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2025/07/08 [General] UID:1000 Activity:popular
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2005/1/26 [Reference/Tax, Politics/Domestic/SocialSecurity] UID:35911 Activity:very high
1/26    I don't think everyone understands this yet, so I'll make sure.
        You know the 6.2% social security tax you pay every year (and
        the matching 6.2% paid by your employer)?  All of it goes directly
        to people receiving social security checks today.  It does not in
        go into any "private account" for you.  Instead, the government
        tracks how much money you make over your life.  Once you hit 67, you
        start getting social security checks.  The size of each check
        will be somewhat proportional to how much you made over your life.
        But this number is very progressive -- that is, people who made
        a lot of money get a much smaller proportion of how much they
        made, compared to people who made a small amount of money during
        their life.
        Once again, the current generation pays money directly to the
        old generation.
        What happens when you have "private accounts"?  Well, everyone gets
        a private account now.  You are paying yourself, not other people.
        However, the old people today still need their social security
        checks.  So who pays for it?  The government!  It takes out huge
        loans to pay money to old people, since all the young people are now
        saving for themselves instead of paying old people.
        Now, it's not a 100% transition to private accounts.  At the
        beginning, it will be a 1/3 transition.  So 4.2% tax goes to
        the old system (paying old people), and 2% goes to yourself (your
        private account).
        \_ Where did you get 6.2?  I pay 7.65% (as does my employer).
           \_ Medicare is 1.45%.  6.2% is social security tax.
        \_ But where does the government money come from?  Taxes.  Collected
           the same way the money would be collected under the current system.
           Right?  Am I missing something?
           \_ I don't understand your question.
           \_ You are missing someting.  If an individual goes the PRA route,
              they will stop paying SS taxes and in stead pay a (regulated)
              amount into their PRA.  The government is now missing the payroll
              taxes for this person but still has to pay for current SS
              beneficiaries.  To make up this missing money the government must
              either raise taxes or run a (larger) defecit.  The person who got
              a PRA is paying X-dollars less in taxes but being forced to
              invest X-dollars into their PRA.
              You will see your payroll tax be replaced with a enforced PRA
              contribution.  That money must be made up with new taxes or a
              defecit (future taxes).
        \_ While you're contemplating this, please also ask yourself the
           following questions.. Is an average American capable of making
           reasonably good investment decisions for his/her private account? If
           \_ You presume that there will be a choice.
           not, then do you think you would trust the government to do that for
           you? What about mutual funds? Where is the guarantee that whatever
           gains you get from the higher stock market returns will not be
           skimmed by those firms as administrative fees? What will happen to
           the financial markets around the world as trillions of dollars from
           the private accounts will start being poured into them? What will
           happen to the world economy and the US economy in particular if the
           US government tries to borrow trillions of dollars that are
           necessary to implement the transition? Have you seen a country that
           has successfully privitized their social security system?
           \_ Solution is simple.  Holders of the PRA are only allowed to
              invest in T-bills.  The rate of return is still better.
              \_ The problem is that with financial industry lobbying you know
                 that regulation won't last for long.  If you think they'll let
                 themselves miss out on this avalance of financial-services
                 business you'd be deluded.  What about people (like me) who
                 think that with our current-account defecit T-bills are not
                 a terribly safe investment?
                 \_ You investing in T-bills is likely as safe as the SSA
                    investing in T-bills for you.  Would limiting investments
                    to T-bills resolve the pp's concern for the lack of
                    security for PRA funds?  I am trying to figure out if the
                    sensitivity is over the security of the investment or
                    something else.
                    \_ It may be as safe an investment, but it destroys the
                       system.  Is that where your sensitivity is?  Do you
                       want the system gone?
        \_ We all understand this. SS does not need to be privatized, but
           it needs the ability to invest better. Imagine if that massive
           surplus has been invested in something other than navel lint.
           \_ Why?  What's wrong with treasuries?
        \_ can I just opt out of the whole system?  Where's my freedom to do
           that?   Don't send me checks, don't make me pay into it...
           \_ It's part of living here.  Don't like it? Move somewhere else.
           \_ The social contract is that you get to live in a country where
              old people get medical care and don't starve to death living on
              the streets.  In return, you must pay payroll taxes.
           \_ The law allows that if you become Amish.
           \_ Why do I have to pay for freeways even though I don't have
              a car? Why do I have to pay for the police even though
              I don't commit crimes?
        \_ And why is there an income cap for SS tax?
           \_ Do you mean, why is it that if I make $200K/year, I only pay
              6.2% of $90K?
             \_ Exactly.  Why make any income exempt?
                \_ I think it's because they want social security to be
                   progressive, but not THAT progressive.  In fact, one of
                   the remedies toward fixing social security is to raise the
                   the amount taxable, while keeping the maximum social
                   security check amounts lower in proportion or the same.
                   \_ SS is regressive, at least when taxed.
                      \_ The payout is much more progressive, outweighing
                         what you put in.
2025/07/08 [General] UID:1000 Activity:popular
7/8     

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