Social Security Partial Default: “Cut Off the Rich!”

Gary North - June 30, 2018

One of the standard cures suggested by Democrat politicians is to stop paying Social Security benefits to the rich. After all, they don’t need the money. The money would be used to pay the retirees who really need the money.

This is just one more “tax the rich” solution. It is theft, pure and simple. It is default.

Would it help Social Security meet its obligations? Of course not. Social Security taxes wages. It always has had a cut-off point, above which the FICA tax was not levied. But rich people made far more than this cut-off. So, the money owed to them is not that much greater as a class than money owed to the less rich. There are so many less-rich people owed the money. Result:

Right now, 90% of benefits go to individuals with less than $50,000 in annual income (not including what they get in Social Security). In order to have a marked impact on Social Security’s financial health, a means test would have to hit far more than just the very rich. More importantly, the added costs of administering a means test would offset any savings.

But the Democrats ignore this. Instead, they use the line of reasoning.

‘Millions of Social Security recipients get minimum-wage benefits that are barely enough to make ends meet. At the other end of the spectrum, though, many retirees who could get by just fine without any Social Security payments at all receive much larger monthly benefits from the government.

With Social Security in crisis, does it make sense to give those big payouts to the people who paid the most in taxes along the way — or should they be forced to sacrifice those benefits for those who are less fortunate?

It makes political sense: “Tax the rich!” It makes little economic sense. Here’s why.

The first $700 to $800 in average monthly earnings counts the most, turning into $0.90 of benefits per $1 of income.

Above that level, the increases in benefits get a lot slower — $0.32 per $1 up to about $4,600 in 2012, and $0.15 per $1 above that.

So even though top wage-earners get more benefits, they don’t get as much more in benefits as their higher earnings would suggest.

Furthermore, many high-income retirees pay taxes on as much as 85% of their Social Security benefits. For top-bracket retirees, that has the same impact as slashing almost 30% off their monthly checks.

The rich are already being cheated.

On one hand, high-income earners pay a lot of money in Social Security taxes, and with the tapered benefit structure, many feel that they already don’t get their fair share of what they put into the Social Security system. If Social Security calculated benefits without the earnings breakpoints described above, then high-income earners would get much more in their monthly retirement checks.

Taxing the rich is based on envy. The sin of envy drives modern politics.

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Published on January 9, 2012. The original is here.