When More is Less, they still ask you for more
How Americans receiving Social Security assistance next year may actually pay more and wipe out the benefit of the COLA increase.
Last month I wrote an article for Rethinking the Dollar relating to the fruitless nature of the cost of living adjustment (COLA) mechanism that is kicked in on a yearly basis to Social Security payments. Americans receiving SSI benefits could receive a "raise" of 11.4% on their monthly payments. At the time I made the case that this boost in monthly income would be small consolation, because it would only serve to aggravate the inflationary spiral that the US consumer price index (CPI) has been suffering from since last year. The government and Federal Reserve have printed and spent money to an exorbitant degree causing your dollars to hold less value in a market where goods are gaining value due to supply chain issues. Distributing more money does not solve that issue; it could even make next year's COLA higher and so on.
What I failed to foresee was that not only would the COLA adjustment fall short of providing adequate relief to SSI recipients, but many of them could end up keeping less of it because they would be bumped into a higher tax bracket. In other words, they are getting an adjustment to help with their cost of living, but our tax structure is built such that they will now have to pay their "fair share" from the total benefit including that adjustment, because being slightly above the poverty threshold in the USA causes the IRS to give their bank account a haircut.
If all of this isn't bad enough, the Biden Administration is planning for the future when Social Security funds have become so depleted that payments may have to be reduced by 20%. As of today Social Security taxes are paid for the first $170,000, but the White House is considering supporting legislation that would have income above $400,000 also taxed. This strategy could spur income earners from that bracket to shield their income in various investments and tax shelters and also curtail their spending.
Americans are raised to look at Social Security as a central pillar in building a stable middle class. but we ought to grow up and realize that it is a broken crutch at best. When it was instituted in the 1930s under FDR, life expectancy was much lower but on the rise. Nevertheless it was hoped that long term a growing population would be able to pay more into the system than it is taking out, and during the prime years of the Baby Boomer generation born between 1946 and 1964 it did. But they are all either retiring or expecting to retire by 2031. The National Academy of Social Insurance estimated that in 2030 there will be 44 SSI beneficiaries for every 100 working Americans, compared to 35 in 2014.
Proposals to privatize social security have long been scorned as unpopular, jeopardizing the security aspect of it by opening it to plundering and speculation. However, it is not only already being plundered by inflation, but beneficiaries being forced to pay more tax on their SSI benefits presents the added indignity of being double taxed on the same work since they paid into the system in order to be able to take out of it.
Recently I heard conservative pundit Ann Coulter scoff at the notion that GOP candidates should be focusing on economic hardship, arguing that voters have to be concerned more with illegal immigration pouring across the southern border. This is playing politics with the livelihoods of millions of Americans. Yes, illegal aliens hurt the labour market by diluting it, but inflation and the insolvent model of social security are threatening to doom the generation that is already past the age of working to poverty in their few remaining years. Coulter should get off her high horse and realize that two fires can be burning at the same time and we can’t ignore one just because the other seems scarier.