Theft From The Middle Class. Will Social Security Theft Be Next?

Written by admin on August 18th, 2011

to pay taxes on their Social Security benefits, so they don’t end up keeping as much of their benefits as other Americans do.  Therefore, compared to the non-wealthy, if Social Security was cut back, the wealthy wouldn’t see as much of a reduction in their income anyway! (One filing jointly has to pay federal taxes on Social Security if they earn over ,000.  In fact, up to 85% of Social Security is taxable if “the total of one-half of your benefits and all your other income is more than ,000 (,000 if you are married filing jointly)”.

About how much would the wealthy benefit if Social Security was reduced significantly?

Let me try to simplify things:

What the wealthy versus the non-wealthy will immediately LOSE if SS benefits are reduced

Although all eligible Americans would lose the total gross reduction of benefits, the wealthy would lose only a small portion of the net after tax Social Security benefit reduction (because if they would have received the money that was taken away, they would have been taxed on it at high rates anyway).

In contrast, the non-wealthy will lose most or all of their net Social security reduction, because their benefits are either not taxed at all or taxed at lower rates.

Example (my actual percentages aren’t accurate; but in order to make my point, there need only be a difference in tax rates between the wealthy and non-wealthy):

Let’s say gross benefits were reduced by 0 a month for everyone.

Let’s say the wealthy pay 85% tax on Social Security benefits.  If there hadn’t been the 0 reduction in gross benefits, they would’ve receive that 0 and then paid tax, and only kept .  So, by reducing their gross benefits by 0, they are really only losing net.

Let’s say the non-wealthy pay 20% tax on Social Security benefits.  If there hadn’t been the 0 reduction in gross benefits, they would’ve received that 0 and then paid tax, and kept .  So, by reducing their gross benefits by 0, they are losing net.

So, one direct result is that the wealthy would lose less than the non-wealthy if Social Security Benefits were reduced.

What the wealthy versus the non-wealthy will immediately GAIN if SS benefits are reduced

When benefits are reduced, the money can go directly to paying down the debt.

The wealthy will benefit greatly from this, since they (and corporations) are the ones that would be called on to pay down the debt, since they are the ones with most of the money (10% of them pay 69.94% of income taxes).

In contrast, the non-wealthy would also benefit by there being less debt to pay, but not nearly as much, because the non-wealthy pay a small proportion of taxes, and hence are expected to pay little of the debt anyway.

So, one direct result is that the wealthy would gain more than the non-wealthy if Social Security Benefits were reduced.

Note that these are only some direct benefits that I’m referring to.  A more complete examination would involve looking at externalities related to the benefits reduction, but that’s complex and outside of the scope of this article. Some possible externalities:  1) Since the non-wealthy would become even less wealthy in relative terms, they may be more desperate for money and willing to work for lower wages, which would raise the profits of wealthy corporations.  2) Since some non-wealthy would work for lower wages and then earn less, they will spend less on retail goods, lowering the profits of the wealthy corporations.

Looking only at these two externalities, does it appear that their effects cancel each other out?

Think again!  The wealthy may be the winner again!

The non-wealthy could be earning 0 less, and the wealthy might in turn make 0 less revenue from that person, but the wealthy person isn’t actually losing 0 like the non-wealthy person is. The wealthy person is just losing the profit portion of the 0.  Part of that 0 would tend to be paid towards fixed costs that would be paid anyway, like labor and cost of goods sold!  Also, this example didn’t even mention the immediately greater profit the company made when they lowered their costs and paid the non-wealthy 0 less in the first place, triggering this sequence!

LONGER TERM BENEFITS OF A SOCIAL SECURITY REDUCTION

The main benefits (not the externalities) that are listed above are the immediate benefits that a Social Security reduction would provide to the wealthy (in terms of the taxes and debt reduction that would occur in the tax year that the reduction took place, or soon after).

But there are other, ongoing, benefits that the wealthy may enjoy!

If Social Security payments remain at the reduced level, that means that the money saved annually by the reduction can be used to pay down the debt annually.

Or, because less money will be paid out in benefits annually, less money could be collected.  The wealthy may be asked to provide less tax income.

In 2010,  the first 6,800 of employee taxable income was taxed at 6.2%, and matched by the employer.

A wealthy employee making 0,000 would pay ,621.60, while someone earning ,000 would pay ,170.

But if less money was being paid in Social Security, and less was to be collected, they might lower the limit from 6,800 to, say, ,000.  The wealthy would benefit while many non-wealthy would pay the same amount!

And also, even if the wealthy saw as large of a net cut in their benefits as the non-wealthy did, the wealthy need the money far less than poorer Americans do.  Which leads me to yet another benefit that the wealthy will earn (er, wrong word? Let’s use “enjoy”) if Social Security payments are lowered:

The poorest of those receiving Social Security will now earn less money, and more of them will be unable to support themselves and pay for health treatment (assuming the government doesn’t cover all of that).

This should lead to a lower life expectancy for those people, meaning they die earlier, and their Social Security payments would end earlier than otherwise would have if the payments hadn’t been reduced in the first place! (In some cases after death, benefits would simply transfer to a spouse, but those spouses, many of whom also would have reduced benefits, would be dying earlier too!)

Because people would be dying earlier and Social Security payments ending earlier, the government would be paying even less in Social Security, and could justify collecting even less in taxes from the wealthy people!

CONCLUSION

So, to summarize, it’s very worrying to think that there could be a plot by elites to run up the debt as an excuse to reduce Social Security.

Heck, regardless of whether there has been a plot or not, it’s worrying to think that Social Security might be reduced in order to pay down the debt!

This would almost certainly harm the non-wealthy and benefit the wealthy.

Let’s hope this won’t be the case.

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