Wednesday, October 5, 2011

Social Security Taxation - A Brief History Lesson

Nothing truly inspirational has come across my path this week that deserves a full-blown rant, but I did come across an interesting bit of the past where Social Security was concerned in my continuing education course, "Things this dummy never learned in college".  

Since I am all but incapable of maintaining the structure required for 'higher education' these days, I have been force to audit even this class; which has no lectures, no syllabus, and no testing (and therefore no grades).  Apparently the ne'er do well leading the program has no plan in mind except the acquisition of knowledge, regardless of the department or discipline involved. This would be an admirable goal in and of itself normally, but I am familiar enough with this reprobate to recognize that no praise for this tortuous effort is warranted.

At any rate, I came across this bit of the history of Social Security in "Economics in One Lesson" but Henry Hazlitt.  While last updated in 1979, Hazlitt provides a wealth of information in just over 200 pages that could help even the most moronic of students understand the basic principles of the Austrian school of economics (and I ought to know).  

Concerning our 'Senior Safety Net', he said:

"Social Security was to be entirely a self-financed insurance plan based on strict actuarial principles.  A reserve fund was to be set up sufficient to meet future claims and payments as they fell due.

It never worked out that way.  The reserve fund existed mainly on paper.  The government spent the Social Security tax receipts, as they came in, either to meet it's ordinary expenses or to pay out benefits.  Since 1975, current benefit payments have exceeded the system's tax receipts.  ....

In the original 1935 bill the salary taxed was only the first $3,000.  The early tax rates were very low.  But between 1965 and 1977, for example, the Social Security tax shot up from 4.4% on the first $6,600 of earned income (levied on employer and employee alike) to a combined 11.7 percent on the first $16,500.  (Between 1960 and 1977, the total tax increased by 572 percent, or about 12 percent per year compounded.) ...  At the beginning of 1977, unfunded liabilities of the Social Security system were officially estimated at $4.1 trillion." (Emphasis added)

Now if that period after 1965 seems oddly familiar, those of you old enough, or who have studied your history might remember that Medicare and Medicaid were added to this program in the Social Security Act of 1965.


1 comment:

Anonymous said...

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