By the time you’re ready to retire, what will be the status of your Social Security benefits? For me, and millions of others born the same year as me, the status will be: “Bankrupt!”. So, it’s really no wonder that the way future Social Security benefits will be handled is a concern amongst a growing number of Americans. Here are a few quick facts  about the Social Security program as it stands now:
- Social Security tax rates are as follows:
Social Security Tax Employee portion 6.2% Employer portion 6.2% Total 12.4%
- The self-employed pay a Social Security tax of 12.4%.
- Social Security taxes are subject to a wage threshold. Any income earned above the threshold is not taxed. In 2010, the threshold was $106,800.
- As of June 30, 2009, 51.9 million people or 16.9% of the U.S. population were receiving monthly Social Security benefits
- In 2010 and 2011, Social Security is projected to spend a total of $48 billion more than it collects in taxes.
- Beginning in 2015, Social Security is projected to spend more than it collects in taxes every year into the foreseeable future.
- By 2037, it is projected that all of the money Social Security has loaned to the federal government will be paid back, at which time, the Social Security Trust Fund will have a balance of zero.
Why will Social Security be “busted” by 2037? It is not because of “misuse”, or because of “improper overpayments“, or even because “the fed has been dipping into the funds”. No, it is simply because the Ratio of Taxpayers to Benefit Recipients has dipped so low. In other words, there are too many takers and not enough givers.
So, the $64 Million Dollar question: How do we fix this? The obvious answer is to increase the ratio of Taxpayers to Benefit Recipients; correct? But how? Well, the answer to that lies within The FairTax! The FairTax will increase the taxpayer base (including illegal immigrants, tourists, & underground economy) while maintaining the number of benefit recipients (illegal immigrants and tourists cannot receive benefits), then the ratio will increase, as will the funding for the Social Security program.
For those of you looking for a simpler explanation to “How is the Social Security system affected?“.
And if that doesn’t satisfy your thirst for knowledge, we’ll be here waiting…
(b) Findings Relating to Federal Payroll Taxes- Congress finds further that the Social Security and Medicare payroll taxes and self-employment taxes–
(1) raise the cost of employment;
(2) destroy jobs and cause unemployment; and
(3) have a disproportionately adverse impact on lower income Americans.
A big concern about the FairTax is that removing Income Taxes also eliminates our ability to pay into the Social Security Program. But the architects of the FairTax ensured our Social Security System would not be left behind. First and foremost, the FairTax rate is partially based on the Social Security Rate (“the old-age, survivors and disability insurance rate“) to ensure that it is fully funded 100% of the time. Should that rate increase or decrease, so will the FairTax rate right along with it.
But I’m sure you’d like to know how the SSA will know how much you made in order to ensure you get your benefits. From that aspect, the FairTax does not change anything. Your employer will continue to report your wage earnings to the SSA for your Social Security benefits “under title II of the Social Security Act”. For the full text, see ‘SEC. 903. WAGES TO BE REPORTED TO SOCIAL SECURITY ADMINISTRATION. Section 903 covers Wages (insurance benefits, pension or annuity benefits, tips, and more) and Self-Employment Income for those of you who own your own business. The following section, ‘SEC. 904. TRUST FUND REVENUE further explains the percentage dedicated to Social Security and how that rate is calculated. Hint, it’s still based on the 12.4% you (and your employer) pay now. I don’t want to bore you too much with all the legal jargon from the actual bill, but the links are there in case you would like to follow them. Just understand that the FairTax does look out for our Social Security benefits.
References:  Just Facts: http://www.justfacts.com/socialsecurity.basics.asp