Social Security withholdings as a tax, not a savings account *UPDATED*

I was complaining to Don Quixote today about the huge amount Mr. Bookworm and I pay in taxes, an amount that will only increase come January, when the Bush tax cuts expire.  I have, of course, a principled opposition to these high taxes.

I firmly believe that government does better when it skims a small amount off of a wealthy economy, than when it gouges an increasingly poor economy.  Nor can I be convinced that Keynsian economics are such that high taxes simply mean that it’s the government, rather than the marketplace, that redistributes wealth for everyone’s benefit.

Robbing Peter to pay Paul, and then having Paul hand some of that same money back to Peter (at great cost, mind you, because of the complicated procedures involved in both these transactions) is a closed system.  Add to that government’s inherent inefficiencies, the corruption that always arises from concentrating too much wealth in one place, and the lack of competition, and you have an economic sink hole, temporarily floated by my money.

Anyway, I was complaining to DQ, and I mentioned that I ended up paying something like 50% of my net income in taxes every year.  DQ thought that was very high, until we figured out that, unlike him, I was including the 15% self-employment withholding I’m forced to hand over to Social Security in my 50% calculation.  Said DQ, “That’s not a tax.”  I disagreed with him.

While I know that he’s technically correct that Social Security withholding is not a tax but is, instead, our beneficent government’s ostensibly holding my money for me to protect me in my old age, I don’t believe I’ll ever see the money again.  Social Security is not a lock box.  Instead, it’s just another government-managed Ponzi scheme and, worse, the government has raided it.

This money won’t come back to me.  As with all my taxes, it just vanishes into the government’s greedy, inefficient maw.

Oh, and by the way, I’m not the only one who sees SS withholding as yet another tax, as opposed to just another savings account over which, coincidentally, I have absolutely no control.

UPDATE: Much as I’m doing a complicated little dance in my brain, desperately trying to find an excuse for such a great misunderstanding, I can’t.  I just somehow took what DQ said and put my own gloss on it.  This is what DQ said:

Wow!  Much as I dearly love Bookworm, and as many wonderful conversations as we’ve had over the years, we can still miscommunicate in stunning fashion!  I would never, ever say that Social Security is not a tax.  Of course it is!  What I asked was whether Bookworm was including in her 50% the other expenses taken from her paycheck, such as PRIVATE retirement funds (IRAs & the like) and health insurance.  She assured me she was not.  I’m very sorry I did not make myself clearer.

Sometimes (too often for my liking) I can be a dope.  On the other hand, I love the discussion my misunderstanding sparked.  And while there’s no doubt that DQ is too smart to make the mistake I attributed to him, others certainly do.

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  • Kirk Strong

    Of course it’s a tax.
    All of the money we pay into Social Security today is used simply to pay benefits to people who are currently retired or to fund other government programs.
    What confuses people is that in the past payments made by individuals into the fund have exceeded payments made out of the fund to beneficiaries.  These excess payments were put into the so-called “Social Security Trust Fund” which despite its name is not really a trust fund at all.  It is simply a pass-through device which channels the surplus amounts to the federal government where it is spent on other programs.
    There are no actual assets in the Social Security Trust Fund, only IOU’s from the U.S. Treasury.  All of the money coming into the Social Security System is spent, one way or another, on current federal expenses.
    Whenever payments out of the system exceed payments coming in, then the federal government must either raise funds elsewhere (by taxing, borrowing, or reducing other expenses) or default on the benefits promised.

  • Scott in SF

    If they take it and it’s not optional, it’s a tax.

  • JKB

    Well, SS certainly not a savings account.  By paying SS, you are purchasing a right to a stream of revenue of some undefined amount dependent upon continued purchase of rights by those younger and the government’s general taxing power being enough for them to pay principle and interest on bonds exchanged for the excess SS cash flows.
    I suppose they technically avoid the tax label since your payments supposedly give you a claim to future payments of some amount you have no control over out of future government revenue streams vice the funds going to pay for government operations.  Of course, functionally, from the payers perspective it is no different than the income tax since your claim for future payments is not legally enforceable, is against an over subscribed non-existent collection of payments.
    What is somewhat creepy is that they call it insurance which means the federal government has an interest in the premature death of citizens.  The government comes out ahead every time a vested worker dies just short of the date they can collect payments.

  • Wolf Howling

    Social Security has been run as a Ponzi scheme since at least the days of the Clinton Administration, if not long before then.  I do know that Clinton began accounting the excess of SSI contributions as part of the general fund – which is what led to the large surpluses experienced in the latter half of the Clinton years.  It was all a grotesque illusion.  Indeed, it is a ponzi scheme for which anyone outside government would be immediately lock up – and it is a ponzi scheme on a scale to put to shame any such white collar scam in our nation’s history. 


    I used to call it a forced federal savings plan.   To add insult to injury, if you live long enough to collect SS, it’s taxed as income.
    Anyone know where our investment in the private sector went, were there returns on the investment?
    In 1996, the Social Security Trustees’ Report stated that the system would begin to go into the red in 2012, and the trust funds would peter out by 2029. All members of the trustees’ advisory panel concurred that at least some Social Security funds should be invested in the private sector. To keep the system as it was and actuarially sound, they wrote, payroll taxes would have to rise by 50 percent or benefits would have to be cut by 30 percent. In 1999, the Social Security Trustees’ Report stated that the Social Security Retirement System’s unfunded liability¹ increased by $752 billion since the 1998 Trustee Report was released. That brought the total long-term unfunded liability to more than $19 trillion.

  • David Foster

    JKB…”By paying SS, you are purchasing a right to a stream of revenue of some undefined amount dependent upon continued purchase of rights by those younger”
    There have been court rulings to the effect that no one has an a actual *right* to S/S…if the government wants to change the retirement age, or make everyone with income/assets greater than $X ineligible, they can do that legally.
    This greatly increases the dependency of citizens on the political class, which in the eyes of that class is not a bug but a feature.

  • Danny Lemieux

    Scott in SF is right: it is a forced payment. It would be a user fee if it was optional; and dedicated to the service in question. However, as pointed out, all fee payments simply go to a general fund.
    It would be a “forced annuity” if it was a payment made to a specific fund with specified asset value and a guaranteed return.
    However, given that the government is free to redefine the terms of any future repayments (e.g., increased retirement age), it isn’t an annuity, is it?

  • Danny Lemieux

    To build on David Foster’s point, too many people don’t seem to realize that once they are financially dependent upon their government for their survival (food, shelter, clothing, etc.), the government owns them. The peoples’ ability to oppose the government is now held hostage.
    Witness in Chicago the ability of the single-party autocracy of the Daley Administration to make life absolutely miserable and very expensive for any that would dare oppose it, forcing them to either comply or leave.
    In a way, we already see this dynamic at work when Democrat Progressives (i.e., American Fascists) demagogue the opposition with claims that, “if you vote for the Republicans, your social security and Medicare benefits will be cut”. They mean it, literally. We can see how, for example, the heavily red gulf states and Nashville, TN were  treated by the State when they faced, respectively, the BP oil disaster and massive flooding earlier this year.
    Oppose us and you will wither, they say.

  • Ymarsakar
    “”The numbers bear out — under Clinton we had peace and prosperity, under Bush we had war and recession,” Edwards said. “Under Obama, we are struggling.””

    This really goes to show one thing. Rule by the mob in a democracy is not good government.

    People are too ignorant and disinterested to be allowed to make the important decisions.

    All the dysfunctions in the military originated from the Carter and Clinton cutbacks in the military. And if it is true, then social security was also raided under the Clintons.

    The Democrats, a pack of looters and Ghenghis Khan deserters.

    Better get out the rat poison if you don’t want your entire grain reserves infested.

    People simply lack expertise. And it makes sense. How many people in your field, actually know what they are doing? And how many people are outside your professional field who think they know what’s going on in your field? How do those people outside compare in numbers to those inside?

    You have the ratio for good government vs bad government vs mob rule right there.

    There’s always some bad apples among the “experts”. And then there are the non-experts who don’t even know what an expert is let alone how to judge whether their elected politicians are one.

    People simply have no idea what is going on in the US government or under various US administrations. They have no idea. Yet democracy decrees that they get to make the important decisions in elections, but only in elections. They don’t get a say otherwise. However, the people that are elected, are also ignorant sheep as well. So there’s no benefit to America by electing anyone. We might as well go back to mob rule.

  • Ymarsakar

    ” Said DQ, “That’s not a tax.””
    Does DQ also think, from the New York Times, that JournoList was some kind of coincidence too or that it isn’t a big deal because the newspapers don’t write a news article on it?

  • Bill Smith

    Of course it’s a tax. It has to be, because there’s nothing in the Constitution that even remotely justifies the govt forcing you to buy something you don’t want — like aretirement plan, or health insurance. While FDR was selling this to the American people as a retirement plan, lock box, trust fund, and all those lies, his attorneys were in court explaining that it was, in fact, a tax. You may have noticed that Obama has suddenly switched to calling our involuntary contributions to his health care plan a tax. Same reason.

  • Bookworm

    I should say here that DQ is one of the smartest people I know, so he fully understands the implications of the social security withholdings.  He is, however, also very precise and careful about facts and, reality notwithstanding, FDR’s definition won, and the withholdings, although practically speaking they are taxes, are not characterized as such.  In other words, please don’t think that DQ thinks that SSI is a lock box with the nice government simply watching over my money for me, ready to give it back should I survive to 65.

  • Texan99

    I’ve been paying FICA for 40 years, and even in the first year I never believed for one second I’d ever see a penny of it again. Social Security has played no part in my retirement plans at any stage in my life. Neither my father, my mother, nor my stepmother (all now deceased) every received a penny, either. There is life without Social Security.
    As for whether it’s most accurate to call it a “tax” or not, I can’t work up any interest in the semantic dispute. What would change depending on the label we give it? What policy determinations would be clarified for us?

  • jj

    I never regarded it, for as much as two seconds, as anything other than a tax.  When I have no option about “paying” it (I don’t “pay” it: it’s removed before I ever see it), then I am without interest in what Roosevelt, his mother, any of his relations, or anyone in government wants to call it: it’s a tax.

  • suek

    >>…ready to give it back should I survive to 65>>
    Not to take away from your point, but I don’t think 65 is the age anymore.  They’ve been extending the age by about a month a year, and I think it’s up to about 65 and 6 months or so now.  Medicare can still start at 65, but not SS.  In fact, I _think_ you have to go on Medicare at 65, because other insurances drop out at that point, expecting you to be on Medicare.  Your original insurance then becomes a secondary – paying the balance after Medicare pays whatever it’s going to pay.

  • Texan99

    I’m not sure about this, and I can’t seem to get a straight answer anywhere, but I think the way it works is that your insurance company will drop you when you start to be covered by Medicare, but not necessarily when you hit the age at which you might qualify for Medicare. Also, whenever you start accepting SS payments, you’re required to sign up for Medicare, too.  But best I can tell, you can turn down your SS payments, not sign up for Medicare, and stay on your existing insurance.  Anyway, I hope that’s true and remains true, because Medicare is becoming a bad joke as more and more of the best doctors ditch it.


    This attached link may answer some of your questions. Before you turn 65, find out what your company covers. Will you be able to take your coverage after retirement? The cost of enrollment increases (penalty) for example with Part D (prescriptions) you pay the penalty monthly until and forever. I enrolled my mother into Part D a year after it became an option. There was a penalty of $60/year thereafter.

  • Texan99

    I don’t have a “company,” I have Blue Cross individual.  All they’ve ever told me is that if I have Medicare I can’t keep them.  They aren’t capable of answering questions about people who are eligible for Medicare and Social Security but don’t want it.  If Blue Cross drops me I guess I’ll be self-insuring — but at least if I’m paying cash, I may be able to find a doctor!  In Costa Rica if not here.


    Your unanswered questions will be resolved 90 days before you turn 65, when the government sends you your O-fficial Medicare Health Insurance Card.
    You automatically get Hospital Insurance (if you want it or not) Medical Insurance is an option. I don’t know if you opt out of both if the deduction for hospital insurance will still be taken out of your social security check. As I understand it, private insurance covers 20%. Part A (hospital) and Part B (medical) represent 80% of payments to physicians and hospitals.
    For what it’s worth, a friend of mine was recently hospitalized (grave illness) for an overnight. $62,000. And no, you did not misread the 0’s.  Three years ago, I misjudged a step and broke (crushed) my ankle. My overnight including surgery was $32,000 and I went back 3 months later to have a transverse screw removed (total time in hospital 6 hours, I went home once I was awake and functional) $12,500. My Blue Cross individual covered everything, except the Darth Vader boot I had to wear (for that I negotiated a price with my surgeon when I told him I saw the same thing online for half the price he wanted to charge.
    p.s. Costa Rica is lovely ;

  • Texan99

    My understanding is that it’s automatic to get the Medicare coverage only if you accept the Social Security payments.  (It’s arguably beyond the authority of the enabling statute for the regulations to link the two, and every year a Congressman — I forget which one — introduces legislation to de-link them, which goes nowhere.)  It is still possible to refuse the Social Security payments and refuse Medicare that way, which would be worth it to me if I knew I could keep my Blue Cross coverage.  So the government’s choosing to send me a card just before I turn 65 isn’t necessarily going to be the last word.
    I’d certainly prefer not to self-insure; I know what medical claims can look like.  What I’d like most is to continue to insure us the way I have for many years, which is with a fairly low-premium high-deductible catastrophic policy.  If the ObamaCare bill is not repealed, I expect that kind of coverage will become unavailable in a couple of years.  Thanks for the help, Congress!  That’s when I would expect to have to start relying on alternatives such as Costa Rica.
    Maybe both Social Security and Medicare will have collapsed by the time I’m 65, anyway. And maybe, when my time comes, I’ll die the way most of the rest of my family has done, without much medical intervention.  So much of it’s bogus, anyway.

  • Ymarsakar

    “FDR’s definition won”
    The Left has always won their war of words and identification. It was only recently that it things changed.
    The issue is, by abiding by the Left’s definition, the user maintains the regime’s legitimacy. It’s hard to fight a regime when you already admit that it is legitimate. Cause if it is legitimate, why fight it? You should simply obey. Isn’t that so.

  • Don Quixote

    Wow!  Much as I dearly love Bookworm, and as many wonderful conversations as we’ve had over the years, we can still miscommunicate in stunning fashion!  I would never, ever say that Social Security is not a tax.  Of course it is!  What I asked was whether Bookworm was including in her 50% the other expenses taken from her paycheck, such as PRIVATE retirement funds (IRAs & the like) and health insurance.  She assured me she was not.  I’m very sorry I did not make myself clearer.

  • Bookworm

    DQ, I’m terribly sorry I misunderstood you, but my failure to do so certainly sparked a fascinating conversation here at the blog!


    I have an idea…
    The politicians promise us the world and deliver land fill. The control and power stops once we pull the lever. We have absolutely no input on major legislation. Unless and until there are national referendums, nothing and no one can stop the process, not even the next election cycle. It’s time to tweak the formulation. Any legislation that effects everyone, i.e. health and financial reforms cannot be passed unless a majority of the electorate votes on it.

  • Don Quixote

    Hi Sadie,

         In California we have public votes on propositions.  It’s not a perfect system by any means, but it it works well enough to be worth having.  It would be interesting, indeed to see how national propositions would work out.  Wonder how a vote on the health care bill would go.


    Hi Don,
    Yes, even here in Pa. we do the same from time to time, although I am quite sure the idea of ‘fish ladders’ has never been raised ;
    A vote on health care, depending upon which reincarnated version was presented, would certainly demand that the senators and representatives of each state be capable of explaining thoroughly the short and long term ramifications, which should send their tongues into contorquetions (new word: contortions at high speed)

  • Ymarsakar

    The government lacks the Constitutional power to do the “legislating”. Majority votes won’t solve the problem, for the Constitution is the one that they need to change by super majority votes. They can’t do it, so they ignore the Constitution and what it mandates to the federal government in terms of what the government is allowed to do or not. The people cannot provide government authority that is not in the Constitution, no matter how many vote on it or against it.
    This may not rank all that high on the DQ misunderstanding index. After all, for many years, even, some thought DQ was the husband Book was writing about. I don’t think anything will top that misunderstanding yet.

  • Mike Devx

    Book says,
    > While I know that he’s technically correct that Social Security withholding is not a tax but is, instead, our beneficent government’s ostensibly holding my money for me to protect me in my old age…

    I continue to maintain that the FICA tax collected in your name is not your money.  No one is “holding your money for you to protect you in your old age.”  That is a pleasant fiction and it is quite politically useful, but it is NOT the truth.

    If that were the case, then the very first people to receive Social Security checks would only have received value for what they put in.  But they received value despite putting NOTHING in.

    The FICA tax is a tax on current earners to pay for current retirees.  Any money left over after paying to current retirees goes into its general fund to pay for future retirees when needed. Anything required to be paid to current retirees, but not available, is a deficit item.

    To view the money you’re putting in as somehow “yours” is a nice fiction.  It’s true, the more you earn, the more they take… and ostensibly, the more you get upon retirement.  So they apportion the money reasonably well as if it were “yours”.

    Does anyone know the numbers of current workers paying into the system to support each retiree?  The numbers that keep recurring to me are 15 workers to 1 retiree in 1940,  2.1 workers per retiree today, which perfect explains why the system is collapsing.
    When Social Security does finally collapse, and taxes are raised on all workers to pay for the grandfathering of everyone beyond a certain age, while everyone younger than that is ejected from the failed system, this fact will become painfully, but totally, obvious.  (Those taxes will replace the FICA tax, which is another reason to note that it is nothing more than a managed tax.  They dare to call it “The FICA Contribution”!!!   No,  I won’t play that game.  A contribution is voluntary.  There’s nothing voluntary about FICA.   I love the pretend game we all allow to be played.

  • Ymarsakar

    “If that were the case, then the very first people to receive Social Security checks would only have received value for what they put in.  But they received value despite putting NOTHING in.”
    And that’s where the ponzi scheme is. There’s a gap in the accounting that nobody wants to talk about. Because it’s too close to what Madoff and Enron were doing.

  • Mike Devx

    Oops, I missed Book’s correction in #13.  I guess that makes me as guilty and a totally worthless human being and dreg of the earth as Andrew Breitbart.  😉
    (That was a joke!  I remain phenomenally impressed by the fellow.  Sly as a fox, giving the liberals a lesson in media manipulation – which takes some doing!)
    But there are in fact far too many people who view their “FICA contributions” as being THEIR OWN money, held by the government for their own good.  They’re completely mistaken, as many posters above have also commented. (In particular, Strong’s #1 and Foster’s #7)
    It is a fiction with very troubling political consequences for its coming collapse.  We on the conservative side love to castigate the poor (and their Obama enablers) for their dependency and entitlements mindset, but we’ve got a vast swath of middle- to upper-class retirees who will skin you alive if you dare touch “their” Social Security.  And it is just as much an entitlement as any other entitlement.  We let THEM off the hook.  We say, “They planned their retirement with it in mind, so we can’t touch it.”  But the poor live their lives with their entitlements fully in mind as well (and just as “justified”), and we do not make the same excuses for THEM.
    Just as Obama’s deficits make Bush’s deficits look like penny change, the Social Security deficits will make Obama’s look like penny change.  Obama is currently at, what 2.5 trillion and counting?  (With a ten-year estimate that is terrifying at 10 additional trillions).  The Social Secuity total debt is estimated to be, I think, in the range of 60 trillion within 30 years.  Obama’s deficits alone will destroy us as a nation; the Social Security deficits stagger the imagination.  Yet we politically can seem to do nothing about it.  Because of the pleasant fiction of “it’s MY MONEY”.

  • Texan99

    You got it, Mike Devx.  Social Security is one area where conservatives fall down completely.  All I can think is that if we could somehow get past the Baby Boomer hump, we could limp along.  But I honestly don’t see how we get past the Baby Boomer hump without getting into Greek territory.


    Baby Boomer hump– Smile, when you call my name ;

  • Ymarsakar

    Somebody should have told Bush that if he only hit this point on Social Security, most of the problems would solve itself. Instead, Bush tried to touch the third rail while playing by DC rules. Not his best game all in all.



    Every elected GOP member of the commission has signed the Taxpayer Protection Pledge.
    “It’s been clear from the beginning that the purpose of this Commission was to put GOP fingerprints on a tax hike, likely a VAT,” said Grover Norquist, president of Americans for Tax Reform.  “Gregg seems to be giving them all ten fingers.”
    “The true agenda of this commission has always been to hide the ball on a tax hike until after the November elections – hence the December reporting date.  Gregg’s gaffe today tips their hand,” concluded Norquist.

    Read more: