Social Security, collected through payroll taxes, is the biggest tax many low-income workers pay at 12.4%. (An employer and employee each pay half. An independent contractor pays it all).
“We are telling young people to put money into this program that guarantees zero or negative returns,” says Rachel Greszler, an author of the report.
Greszler notes this is versus a 4.76% annual return for those conservatively invested: half in stocks and half in government bonds, according to the study.
Social Security officials defended the program as comprehensive.
“Rates of return on Social Security are complicated because these benefits include disability and survivors protection as well as CPI-indexed life annuities for retirees, something not offered in the commercial market,” says Stephen Goss, Social Security chief actuary.
“The value of such insurance protection,” he adds, “goes beyond just the average benefit payments, as indicated by the premiums charged for commercial insurance.”
Goss argues that accumulation in private accounts “can vary widely based on timing and investment choices. As a result, serious proposals for providing some portion of Social Security protection in the form of individual accounts have generally provided some form of guaranteed return to eliminate the prospect that some individuals will have poor experience.”
But beyond the debate over private accounts, everyone agrees on this: The current Social Security system is in the red and Congress must act over the next 15 years. Benefits must either be reduced or taxes raised again or the system’s two trust funds will reduce payments by about a quarter.
The Social Security Trustees project “the combined trust funds will be depleted in 2035.”
Goss, in a sentiment shared by Social Security critics, says “Congress must act.”