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Old 10-28-2011, 12:48 AM
cragger cragger is offline
Join Date: Aug 2007
Posts: 632
Default Re: Maybe this bit of income equalization...

I understand that technically the use of the term "entitlement" is as you say neutral, as "under terms of this contract, each party is entitled to ....". I think however that as you previously suggested regarding linkage of Social Security and Medicare, in contemporary political context there is sometimes an intent to lump it in with Welfare-type assistance and to ideas like that of a "culture of entitlement" as well, and for the same purpose.

As to whether we should consider FICA a tax, I similiarly think that the nomenclature in use tends to reflect the agenda of the user. But I don't think there is anything inherent in the SS program that contradicts my view of it as a contributory retirement program. One that operates a single joint account, rather than a bunch of individual accounts like 401k's. This is, I think, the same way other retirement programs operate.

As a joint account, there is nothing in principle that means that the money a retiree receives is the same as that contributed over the course of employment. A dollar is a dollar and it doesn't really matter. How much of current payouts could theoretically be the same dollars depends on how the account is managed relative to the actuarial realities. As of 2007 for example, the accumulated surplus or "trust fund" stood at 2.2 trillion so there was a lot of accumulated contributions from current and former workers.

Since the folks who run the numbers tell us that in 30-40 years there will be a shortfall given current contribution rates and actuarily expected payouts, you are somewhat correct about the program in that there will be or was some point in time at which the payouts for an individual will not be funded entirely by that individual's contributions plus the accumulated interest on those contributions. This does not make it a "pay as you go" system however. It simply means that the program hasn't been managed in a manner that has consistently been sufficiently sound in actuarial terms. This is obviously since changes have to go through our unfortunate political process. SS may not be far off from being a saved-contribution-plus-earnings payout program however. Given the timescales on which retirement operates, small changes make considerable differences, much as a change of a couple percentage points in the interest on a home loan makes a big difference in the amount paid out over the course of a 30-year loan. It doesn't take much change to make the "trust fund" grow, shrink, or hold steady.
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