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There's Nothing Wrong with Social Security which Taxing the Rich Fairly Wouldn't Fix

By dlindorff - Posted on 16 August 2010

By Dave Lindorff

New York Times columnist and economist Paul Krugman, in his column today, is right to expose the attacks on Social Security as being the work of right-wing ideologues eager to destroy a government program that works, backed by cowardly Democrats who want to show their fiscal “responsibility” by getting tough with future pensioners.

But he doesn’t go the extra step to point out that this program, founded 75 years ago as a cornerstone of Franklin Roosevelt’s New Deal, could be much more fair and even generous to elderly and disabled retirees, and also placed on a much sounder economic footing, by a few simple reforms that would not cost most people a penny, or require hard working folks to work one day longer before retiring.

There is a problem facing Social Security, which Krugman doesn’t mention. The Nobel economist is correct that the system has built up a huge multi-trillion-dollar surplus over the years. And he is correct in noting that this surplus--the Trust Fund--is big enough to fund the system probably indefinitely, even during the huge bulge in retirement that is starting now that the Baby Boomer generation is hitting retirement age. What he fails to mention is that the Trust Fund has all been stolen (okay, technically borrowed) by the federal government to fund its own annual deficits, and given the national attitude towards taxes, it will never be repaid. That’s why the right is able to create a panic by falsely claiming that Social Security is going to go “bankrupt” when current workers’ Social Security taxes can no longer pay for the benefits of current retirees.

But there is a simple solution to even this deception, which is to eliminate the cap on income which is subject to the Social Security tax.

At present, every worker in America pays the same percentage of income into the Social Security Trust Fund--currently 6.2% of the first $106,800 of earnings. Since everyone pays at that rate, whether they earn $10,680 a year or $106,800 a year, that would be a flat tax, except that it’s not. Because once someone earns more than $106,800 in a year, the tax rate falls off precipitously. After that cap, which is adjusted upward a little bit each year to account for inflation, there is no SSI tax on additional money earned. In other words, if someone earns $106,800.00, she or he pays $6,621.60 into the Trust Fund, but if that worker earns $107,000, or $313,600 a year, the tax is still just $6,621.60. For the person earning twice the income cap of $313,600, that means an SSI tax rate of only 3.1%. For someone earning 10 times the cap, or $1.680 million, the tax rate is only 0.62%...

For the rest of this story by DAVE LINDORFF in ThisCantBeHappening!, the new independent, online newspaper, please go to: ThisCantBeHappening!

Is there any relationship to GDP? I would think not, but maybe some people would say that there is a relationship between social security and gdp. If there is, then ss is going to disappear, because jobs certainly have and I suppose incomes of rich Americans aren't made from jobs in the U.S., but rather from investments, which can include foreign ones.

Re. gdp, Professor Michel Chossudovsky says that China has [possibly] become the top economy, surpassing the U.S., because gdp includes "value added" dollars.

"Chossudovsky: China could already be world's largest economy" (1:32)

RussiaToday, Aug. 17, 2010

It's widely predicted that China's economy will be the largest in the world by 2020, overtaking the U.S. Only this week the country surpassed Japan to become the world's second biggest economy by GDP. And earlier this year it officially overtook Germany to become the biggest exporter. However, Michel Chossudovsky from the centre for research of globalisation in Canada says China's economy could ALREADY be the biggest in the world, as GDP is not representative of the actual strength of an economy.


GDP certainly "is not representative of the actual strength of an economy". Several years ago I learned about "phantom gdp" from, I believe, Paul Craig Roberts, and this accounts for much of the gdp in the U.S. When U.S. manufacturers actually make products in other countries and they're imported to the U.S. as "made in the U.S.A.", then the revenues or profits are added to U.S. gdp, but it's not real U.S. gdp. U.S. gdp numbers are inflated on a false basis; rather than being based on jobs and incomes in the U.S.

Like Prof. Chossudovsky says, there's more to evaluating or estimating a country's economic strength than gdp. Based on gdp, alone, however, the U.S. hasn't been doing well, because a considerable portion of U.S. gdp isn't real anyway; much of it is phantom. GDP can keep growing while the population also grows, but not in the same direction. Instead, more of the population would be heading to poverty; for the people not already there.

If this is relevant to social security analysis, then maybe SS is in greater danger than people might or would otherwise think or calculate. Jobs in the U.S., so incomes made in the U.S., are relevant to SS calculations, but if gdp is also used in these calculations, then they are falsely based, in part anyway. SS is based on individual incomes, only; I believe. If that's true, then gdp and manufacturer revenues are not part of SS calculations. It's known that U.S. manufacturers make "made in U.S.A." products in other countries, instead of the U.S. Because of this, gdp definitely should not be included in SS calculations.

The rich in the U.S. can keep getting richer without being taxable for SS, if their wealth is based on incomes not actually made and declared in the U.S. or are made only or mostly from investments, instead of employment. I'm not sure, but believe SS is only from employment incomes; not investments or investment incomes, which I think is called capital gains.

I don't know how all of this works, but U.S. jobs have considerably disappeared and probably more will disappear. Not all jobs can be offshored, but many have been and more can be, and many that can't be offshored pay low wages. This much surely is relevant to SS calculations. And how many jobs are going to be wiped out because of the fishing industry crisis in the Gulf of Mexico, millions?

People shouldn't be consuming anything that's from the Gulf fishing industry anymore and who knows when this toxic pollution is going to similarly hit the fishing industry off of the eastern coast of the country. If that part of the fishing industry also becomes polluted out of business, then it'll mean many more jobs gone. Between this domestic wiping out of jobs and offshoring, how long can social security survive at a meaningful level?

And how is it possible to make the rich pay more into the system when the rich and not democracy control the system? The U.S. is not a real democracy except on a fanciful piece of paper. Voters made sure of this with nonsensical voting for so-called lesser evils when evil is evil and these voters couldn't prove the lesser part was true anyway. We reap as or what we sow.

I'm not sure, but believe that more than a theoretical approach to the resolution of the social security problem is called for. If gdp is at all related to ss calculations, then gdp needs to be correctly understood for what it really is and only the relevant part of it should be used. If the disappearance of jobs is relevant, which it is, then this needs to be entered into the calculation; including predictable job losses for jobs that haven't yet ended but predictably will in the or a near future.

I don't know how many people still have good paying jobs in the U.S., but many are gone and some good paying jobs were shifted to imported workers; like in the hi-tech industry starting in the early 1990s with the H-1B program. While many of the hi-tech jobs remained in the U.S., foreigners were used, instead of Americans; for racket and greed, of course. Some recruiters went so far as to say that if a person had a foreign worker visa, then his or her application was welcome, but if a potential candidate was American, then don't bother applying; the resume would go to the waste basket or shredder.

That's another way that gdp is considerably falsified. The foreigners are taxed, but when they leave, then their incomes leave with them. Meanwhile, U.S. citizens and permanent residents are put out of work. The foreign worker can leave whenever he or she pleases. The American worker can't and quickly becomes unemployable due to becoming outdated, skills-wise.

Maybe the latter should also be factored into ss calculations.

Paul Craig Roberts might possibly have already analyzed all of this because he certainly has in terms of gdp, offshoring and h-1b foreign worker replacement of U.S. workers and is evidently knowledgeable with respect to economics and/or finance.


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