Being retired has made the solutions to Social Security personal – The News Herald


“Social Security is based on a principle … that you care about other people.”

- Noam Chomsky, American philosopher

Hello Downriver,

Retirement.

I haven’t mentioned it much, but in October I officially retired from full-time work.

Of course, some of you have felt I’ve been retired for a while, based on your comments concerning my opinions.

But that’s for another time.

What I’ve found thus far is, quite frankly, I don’t feel retired.

In fact, I don’t even know what retired means.

I suppose in large measure, it’s a matter of no longer having a regular weekly regimen that involves getting up at a particular time, going to work, calling it a day and then starting all over again.

Five days a week.

Of course, that’s probably why I feel a little lost — in more ways than one: no schedule I have to stick to and, as a result, no clock or calendar to mind my time.

Truth is that I find myself losing track of time itself; unless something is scheduled on my phone or in our calendar book, I no longer automatically know what day of the week it is, what date of the month it is.

Indeed, you could argue that every day is a Saturday.

But even that would be wrong — and dangerous, since I do have things to do.

I’ve had people ask me how retirement is going and my standard response has been, “I have no idea.”

How true.

Although I officially retired only in October, I’ve been collecting Social Security for a couple of years now: Once I reached my full retirement age, I was able to continue to collect a regular paycheck without impacting my monthly stipend.

So, my wife and I socked some extra money away for as long as I was working.

But now, it’s Social Security and disbursements from our investments to pay our bills.

Which means we’re definitely retired now.

And which also means I’m more than a little annoyed about Congress’ lack of action on permanently fixing this vital program.

Now, before you say this is self-serving on my part, I’ve been critical of Congress on this matter for years, decades even.

And my criticism has been consistent: Remove the ceiling on income subject to the 12.4% Social Security tax (half paid by you, half by your employer) — and start taxing income from other sources.

The cap on taxable income is $147,000 this year.

Consider this:

According to published reports, the 94% of working Americans earning less than $147,000 a year pay into the program with every dollar they earn.

That means our effective tax rate is 6.2%.

But the other 6% of working Americans don’t pay anything above that $147,000 in earned income.

Which makes our Social Security tax a “regressive” tax — just like a sales tax: The poor pay more of their income in taxes than the rich.

In fact, I’d argue that the poor — or anyone earning less than $147,000 — are subsidizing the Social Security benefits of the rich.

Here’s how that works — in a simplified way:

Say you earn $140,000. You’ll pay $9,114 in payroll taxes. (Your employer pays another $9,114.)

But if you earn $400,000, you’ll still only pay $9,114 in payroll taxes — for an effective tax rate of (wait for it): 2%.

Make $1 million a year, and you’ll pay less than 1% of your income in Social Security taxes. (Who might they be? CEOs, sports stars.)

Of course, defenders of this way of doing business say that if the rich were taxed more, they should be entitled to get more in benefits.

Fine.

Except they don’t.

According to the Social Security Administration, in 2016 an estimated $1.2 trillion in earned income escaped taxation due to this cap.

That’s $1.2 trillion over the cap of $147,000 per person.

And that was six years ago!

Which means there’s even more untaxed income existing today — since the U.S. added 2.3 million new millionaires to our society from 2019 to 2020.

Tax that $1.2 trillion and Social Security would collect another $74.4 million each year.

Now that might not seem like much, since Social Security pays out about $1 trillion a year in benefits.

But if the program brings in more money, some thought might be given to dropping the rate.

It’s a thought.

So, want to fix Social Security?

Start by removing the cap on earned income subject to the tax.

Next, subject investment income to Social Security taxation.

There is no defensible way individuals should benefit from such nonpayroll income without paying into the system.

Just because you don’t get a W2 at the end of the year doesn’t mean you don’t benefit from the program.

Third — and this might strike you as weird: Fix our immigration laws to increase the number of people legally entering our country.

These individuals pay taxes and usually work for paychecks — not collect from investments.

Which means they’d increase the pool of workers paying into the system.

Why is this important?

Because people like me — yes, I’m a baby boomer — have been reaching retirement age in droves for a decade.

The first cohort born in 1946 reached full retirement age in 2012 (not including early retirements), and the last group born in 1964 will reach full retirement age in 2030.

The problem?

We didn’t have enough babies over the past decades to offset this retirement surge.

According to an analysis by the Brookings Institution, U.S. fertility rates “are likely to be considerably below replacement levels for the foreseeable future.”

This, the analysis continues, “is driven by more than a decade of falling birth rates and declining births at all ages for multiple cohorts of women, not simply the aftermath of the pandemic-induced reduction in births.”

In short, at the same time baby boomers were retiring, people have either not been having children, have been waiting to have children or have been having fewer children.

So, how do you address this issue: Well, you can’t tell people to start having babies.

But you can open the doors and let people in.

Sure, there are issues there — some of them racially- or ethnically-tainted — but this is a relatively easy fix.

Certainly, a better “fix” than considering raising the Social Security tax rate, which some in Washington advocate.

Instead, increase the tax base.

We do this in our communities by building homes and encouraging businesses to move into our towns.

Just do it at a national level.

Bottom line: There simply haven’t been — and won’t be — enough new workers entering the labor force to offset those of us who continue to retire.

Yes, we can continue to tweak the program — like increasing the full retirement age to reflect that people are living longer.

But that can’t be done forever.

No, there needs to be some permanent fixes that can extend well into the future.

And I’ve named three.

In the end, I knew retirement was going to be an interesting trip — and I wasn’t wrong.

But now my long-time criticisms of the Social Security system — and Congress — have become personal.

Mitch McConnell was famously quoted once as saying “more young people believe they’ll see a UFO than that they’ll see their own Social Security benefits.”

That will only come true if people like McConnell continue to ignore reasonable solutions.

To steal from a famous saying, “fix the damn system.”

If not for my wife and I, then for our children and grandchildren.

Craig Farrand is a former managing editor of The News-Herald Newspapers. He can be reached at [email protected]



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