There is so much garbage floating around on social media and touted by extremists (read Democratic party haters) I thought I would clear up some of the most egregious about Social Security:
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- Myth: Payments were voluntary: Persons working in employment covered by Social Security are subject to the FICA payroll tax. Like all taxes, this has never been voluntary. From the first days of the program to the present, anyone working on a job covered by Social Security has been obligated to pay their payroll taxes. In the early years of the program, however, only about half the jobs in the economy were covered by Social Security. Thus one could work in non-covered employment and not have to pay FICA taxes
- Myth: Tax rates were promised to be 1% of first $1400: The tax rate in the original 1935 law was 1% each on the employer and the employee, on the first $3,000 of earnings. This rate was increased on a regular schedule in four steps so that by 1949 the rate would be 3% each on the first $3,000. The figure was never $1,400, and the rate was never fixed for all time at 1%. See Title VIII Section 801.
- Myth: FICA taxes paid by employees were tax deductible: There was never any provision of law making the Social Security taxes paid by employees deductible for income tax In fact, the 1935 law expressly forbid this idea, in Section 803 of Title VIII which states “SEC. 803. For the purposes of the income tax imposed by Title I of the Revenue Act of 1934 or by any Act of Congress in substitution therefor, the tax imposed by section 801 shall not be allowed as a deduction to the taxpayer in computing his net income for the year in which such tax is deducted from his wages.”
- MYTH: Social security payments get taxed: There was no “tax/no tax provision” in the original Act. However, Federal Treasury rulings of 1938, 1940, 1941, 1970 made clarifications of what payments were not subject to income tax. The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan (a Republican) in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote. The amount taxed is fully dependent on income earned from other means.
- MYTH: Illegal aliens get social security: Being a U.S. citizen isn’t a requirement for receiving Social Security, SO according to the Social Security Administration, noncitizens who are “lawfully in the United States and meet all eligibility requirements” can get benefits. HOWEVER, persons who have never worked – and never contributed – cannot draw Social Security benefits unless their work credits between the US and their home country (called totalization) meets the same credit requirements as US citizens. The totalization agreements with 26 countries are bi-lateral.
- Myth: Democrats “raided” Social Security funds: There are two Social Security trust funds, one for retirement payments and the other for disability benefits. Worker payroll taxes are allocated among the two funds. At no time has the Social Security Trust fund been put into the general fund of the government.
Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the “unified budget.” This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are “on-budget.” This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken “off-budget.” This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are “on-budget” or “off-budget” is primarily a question of accounting practices–it has no effect on the actual operations of the Trust Fund itself.
The Social Security program has accrued close to $2.9 trillion in net cash surpluses since its inception, with nearly all of this amount being generated over the past 35 years. Put another way, the program has collected more money than it’s expended every year since 1983. By law, these net cash surpluses are required to be invested in special-issue government bonds and, to a lesser extent, certificates of indebtedness. In return, the federal government gets access to $2.9 trillion in borrowing capacity that it can use for normal line items in its budget. In other words, Social Security’s Trust has $2.9 trillion in asset reserves, but not a red cent of cash in the vault, so to speak.
The fact is that Congress, despite borrowing $2.9 trillion from Social Security, hasn’t pilfered or misappropriated a red cent from the program. Regardless of whether Social Security was presented as a unified budget or as a separate entity (i.e., off budget), none of its funding has been conflated with normal federal spending.