No, the Social Security system is not collapsing, as much as the powers that be would like you to go into a full-blown panic.
Former NYTimes tax reporter David Cay Johnston points out in the comments:
What the story lacked was pointing out if the Congress fails to provide full benefits to those who have paid for them in advance because of the excess FICA tax it would be a form of default on US government debt.
THAT is the issue that needs a great deal of attention: reducing benefits paid for in advance is a form of default.
At its peak the excess tax equaled 4 percent of wages subject to FICA. That excess tax took away half of the savings capacity of the vast majority of Americans.
Factor in the time value of money and the effect of Reagan’s and Greenspan’s excess FICA tax was enormous and helps explain why so many Americans are mired in debt today. Fewer than half of taxpayers have ANY cash savings, while more than half did before Reagan took office.
Because of Reaganomics, Social Security was converted from a pay-as-you go system into a subtle way to subtle way to overtax wages and thus finance tax cuts for the rich. The integrated federal budget (SS used to be accounted for separately) made this sleight-of-tax possible.
Without overtaxing workers Reagan would not have been able to persuade Congress to give massive tax relief to the few who paid the 70 percent (and later 50 percent) marginal rates.
What the NYT story did not point out was that the pay-in-advance scheme was premised on Mr. Reagan’s promise that he would balance the federal budget within three years of taking office and use the surplus to pay down the existing federal debt (about $2.5 trillion in today’s dollars).
But take it from someone with four decades of experience, it is very hard to introduce into an article history even from as recently as 1983 when the second most valued word in newsrooms is “yesterday,” exceeded only by “early this morning.”
I’ve known this for a while. When they increased FICA taxes in the 80’s it was to pay for the boomers’ retirement. Instead the government stole that money and now it doesn’t want to pay it back so now we need entitlement reform. The government robbed hardworking american citizens, but we don’t hear about that in the media now do we? I’m looking at a $6000 tax bill for FICA alone!
When you break the social contract …
Forty-one years ago I got a Social Security Card and went to work on a cattle ranch a hundred miles the other side of Burns. When I first cashed that first paycheck, I entered into a social contract with The United States Government – specifically if I pay into the system for the next forty-five or fifty years, then after forty-five or fifty years of paying into the system the system will pay me back. I faithfully met my part of the contract, faithfully paid into the system.
Now the government wants to take away what I’ve paid for the past forty-one years, just nine years short of honoring its end of the social contract… to steal it from me and give to the bankers. Violate the social contract we entered into forty-one years ago. Rip me off, and give it away.
Be forewarned, take from me what I have in good faith paid into the system, and I will no longer consider myself a part of this country, nor bound to its laws, its standards or its mores. Rip me off, and I’ll rip you a new asshole.