CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Long Running DC Scam Called Social Security  Fri Mar 28, 2008 12:46 am | |
| The nation’s biggest and longest-running financial scam isn’t playing out in the mortgage industry or on Wall Street. It’s headquartered in Washington, D.C., and they call it Social Security.
This week, in fact, some of the leading perpetratators of that scam called a press conference, hoping to frighten the American people into extending the fraud’s lifespan. As people such as Treasury Secretary Henry Paulson and Labor Secretary Elaine Chao came to the microphone, you could hear the nervousness in their voices. They know that a day of reckoning is coming.
As in most such scams, there are two versions of events. One is the official sales pitch used to bring in the suckers. The second is the hidden reality, the way the racket really works.
In this case, both versions begin in 1983. That year, Congress and President Ronald Reagan agreed to increase Social Security taxes on the working and middle classes well above what was needed to support the retirement program in the near and midterm. Surplus revenue from that higher tax was supposed to go into the Social Security Trust Fund, to be drawn upon later as the baby boom generation moved into retirement.
Officially, the plan has worked pretty much as promised. The surpluses have indeed rolled in —- in fiscal 2007 alone, Social Security taxes raised $175 billion more than the program spent. Thanks to surpluses accumulated through the years, on paper Social Security is financially sound through at least 2041.
But here’s how things really work: Once collected, the extra taxes charged to the working and middle classes for Social Security haven’t gone into the Social Security Trust Fund. Instead, they have been treated exactly like income taxes and have been spent running government. As a result, after 25 years of paying extra taxes, tens of millions of lower- and middle-income taxpayers have nothing to show for it but government IOUs.
For the most affluent taxpayers, however, the 1983 deal has been sweet. First, they are largely exempt from paying the Social Security surtax. In 2007, for example, Social Security taxes were collected only on the first $97,500 of a person’s wage or salary, and not collected at all on other forms of income.
That has produced gross inequities, as billionaire Warren Buffett has repeatedly pointed out. According to Buffett, he pays less than 18 percent of his enormous income in combined federal taxes. But because of payroll taxes, his secretarial and support staff pay a combined rate of more than 30 percent.
In fact, as Buffett and others point out, President Bush’s tax cuts for the affluent would not have been possible without the trillions of surplus dollars collected from secretaries and other working Americans in the name of Social Security.
But pretty soon, that scam is going to come to an end. With baby boomers now retiring, the Social Security surplus declines every year. By 2017, when the surplus disappears altogether, two things will happen:
Without the hidden subsidy from Social Security, the true size of our federal deficit will become clear.
After 34 years in which the general fund was subsidized by Social Security, the flow of money will reverse. The general fund will be tapped to subsidize Social Security benefits, which means taxes will increase, particularly for the affluent.
That prospect has certain sectors of Washington in a low-level panic. President Bush’s Social Security “reform” was one effort to try to squirm out of the deal cut in 1983, and other efforts to solve the problem by cutting benefits to retirees are sure to follow. As Paulson put it this week, “the sooner we take action to strengthen Social Security’s financial footing, the less drastic the needed reforms will be.”
Again, on paper, Social Security’s financial footing is solid through at least 2041, and working Americans have been paying extra taxes for 25 years to make it that way.
But now, when they’re about to start collecting on the deal, their leaders want to deny the deal existed.
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