Social Security recipients got a nice benefit increase this year, but according to a report by The Senior Citizens League (TSCL), “Almost half of all households that receive Social Security benefits might pay taxes this year on a portion of their benefits.” This raise and the possible reduction in benefits reveals the true nature of Social Security.
The Social Security program provides monthly benefits to retired workers, families of retired workers, survivors of deceased workers, disabled workers, and families of disabled workers. It is funded by a 12.4 percent payroll tax (split equally between employers and employees) on the first $147,000 of an employee’s annual income. Self-employed individuals pay the full 12.4 percent but receive both a reduction in their net earnings from self-employment and a tax deduction equal to 50 percent of the amount of the Social Security tax they paid. One must pay Social Security taxes for a minimum of 40 quarters, or 10 years, to be eligible for benefits, which are figured on the basis of one’s Primary Insurance Amount (PIA) — the average of a worker’s 35 highest years of earnings (up to a particular year’s wage base), adjusted for inflation.
Since 1975, the Social Security Administration has based benefit increases (cost-of-living adjustments, or COLAs) on related increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. This is a monthly index calculated by the Bureau of Labor Statistics (BLS). A COLA increases a person’s Social Security retirement benefit by approximately the amount of the COLA times the benefit amount.
Social Security recipients received a 5.9 percent COLA for 2022 — the largest increase in benefits since the 7.4 percent increase in 1982. Since 2011, COLAs have all been only 2 percent or less (except for 2.8% in 2019). For three years (2010, 2011, and 2016), there was no COLA granted at all.
Many senior citizens weren’t cheering as loudly as they normally would about the 5.9 percent COLA, for soon after it was announced last fall, the Centers for Medicare & Medicaid Services (CMS) announced that the standard premium for Medicare Part B — which is deducted from most people’s monthly Social Security benefits — would jump by 14.5 percent for 2022 instead of the 6.7 percent that the government had initially estimated. So much for the 5.9 percent COLA.
But that is not the only way that Social Security benefits will be reduced in 2022. According to the Social Security Administration (SSA):
- Up to 50% of Social Security benefits are taxed on income from $25,000 to $34,000 for individuals, or $32,000 to $44,000 for married couples filing jointly.
- Up to 85% of benefits are taxable if the income level is over $34,000 for individuals or $44,000 for couples.
(Income here is “provisional income” — adjusted gross income + nontaxable interest income + half of Social Security benefits.) Back in 1984, when the taxation of Social Security benefits was introduced, fewer than 10 percent of beneficiaries paid taxes on their benefits. Now that figure is almost 50 percent, and is expected to cost beneficiaries $45 billion in 2022. Turns out that Congress has never adjusted the income thresholds that subject Social Security benefits to taxation. They have never even been indexed for inflation.
COLAs and taxation of Social Security benefits reveal the true nature of Social Security.
Social Security is welfare, plain and simple.
Like other welfare programs, Congress can raise or lower Social Security benefits at any time and for any reason, means-test benefits, delay benefits, or change the way benefits are determined. What Congress gives in the form of COLAs, Congress can take away by taxing benefits. Just as Temporary Assistance for Needy Families is welfare for the poor, the Women, Infants, and Children nutrition program is welfare for new mothers, and Supplemental Security Income is welfare for the disabled, so Social Security is welfare for senior citizens.
The fact that most Americans don’t think of it as welfare is because they “paid into the system,” “earned it,” “paid for it,” or are “entitled to it,” is irrelevant. There is no connection between Social Security taxes paid and benefits received, there is no contractual right to receive benefits, and benefits are calculated by an arbitrary formula that Congress can change at any time.
In response, some say that the money that comes out of Americans’ paychecks says it is for Social Security. In a sense it is, but not for the one who has it deducted from his paycheck.
Because the Social Security taxes collected are immediately spent on benefits and government programs, Social Security can be described as a system that takes money from the young who work and gives it to the old who don’t. This makes it an intergenerational, income-transfer, wealth-redistribution welfare program rather than a bona fide retirement savings program.
