Social Security Debt Collection

There was a recent media dust-up over the Social Security Administration seizing tax refunds to recoup over-payments that happened more than a decade ago. However, Stephen Ohlemacher of the Associated Press explained that the program would be halted at least temporarily in his article titled “Social Security halts effort to collect old over-payments.” A 2008 law allows use of a “…Treasury program to seize federal payments to recoup debts that are more than 10 years old. Previously, there was a 10-year limit on using the program.”  “The Social Security Administration says it has identified about 400,000 people with old debts. They owe a total of $714 million.” Some of the disputed benefits were paid to surviving parents or guardians of children eligible for survivor benefits or the benefits paid to a disabled child. The agency says it has already collected $55 million, and at least some of it was collected from children and grandchildren of those who were overpaid.

Both sides of the political aisle protested the collection process, which sometimes involved seizing tax return funds from family members of parents and guardians of people who the Social Security Administration determined had received payments that weren’t valid. Democratic Senators Barbara Boxer of California and Barbara Mikulski of Maryland issued a letter that said, “While this policy of seizing refunds to repay decades-old Social security overpayments might be allowed under the law, it is entirely unjust.”

I question why this policy attracted so much media attention while the current Social Security system is financed by taxing the young who are still working to pay the benefits of retirees. I posted a review of “The Predictable Surprise,” by Sylvester J. Schieber on this date. I focused on FDR and the development of the Social Security Program. However, there is much more to the book. It describes how Social Security benefit recipients in the early days received “windfalls” relative to their contributions. That had changed as of the 2012 date of the publication of the book when there were 130 to 135 million workers supporting the system with 50 to 55 million recipients, and the ratio gets worse each year as large numbers of people retire and line up for benefits.

It is sobering to see how unfair the Social Security Program has become to workers paying into the system. A worker, “…earning 60 percent of average pay…will receive lifetime benefits worth only $0.91 for every dollar of payroll taxes put into the system on his behalf, accumulated with interest. Returns will be only $0.67 on each dollar of accumulated contributions for a medium earner, and only $0.48 on the dollar for a maximum earner.”  Consider those numbers and the fairness of proposals that Social Security taxes should be withheld regardless of how much is earned. (I realize that statement won’t play well with those who advocate that high earners aren’t paying their “fair share.”)

The current Social Security program is designed to keep older people well-funded by the people young enough to still be working. Some even advocate increasing taxes on the young to make certain those receiving benefits don’t have to participate in helping fix a broken system. As one of those receiving benefits, I crave hearing from politicians who have the courage to step forward with suggestions for participation from members of all age groups. I was encouraged to read President Obama’s courageous position before he was inaugurated (see paragraph two of the review posted this week.) Apparently his courage evaporated with “political reality.”

One thought on “Social Security Debt Collection

  1. As far as the “fairness” of the Social Security system is concerned, one would do well to remember that, over the 40 year career of the average worker, the amount he or she paid into the system would return more than twice as much if it were invested in an indexed mutual fund rather than government securities, as is now the case. This is true for any 40 year period you can pick since SS benefits began, in spite of all the economic ups and downs of the last 80 years. So the champions of government control have essentially robbed nearly every SS beneficiary of half their money. Then their solution is to take more money from their favorite source, higher earners, to dump into T bills where it can pull down a whopping 1%. Bernie Madoff went to jail for a scheme that made more sense than this.

    It gets worse. At least workers used to be able to put their own money somewhere “safe” and still net a decent return. No more. By holding interest rates essentially at zero, ostensibly to prop up the shaky recovery but more likely to prop up the President’s approval numbers, the Federal Reserve forces risk on anyone trying to round out a decent sized nest egg. By driving everybody’s money into stocks and bonds, the Fed is creating another bubble. When it goes boom (read “bust”) will the big losers get bailed out again? Probably. Will the small losers get similar treatment? The answer is that anybody joining the workforce today had better not figure on early retirement – or any other kind. If you plan on living longer, plan on working longer. Much longer.

    And about the Treasury trying to take back their mistakes by chasing down the kids and grand kids of people who may have gotten an undeserved payday during the Carter Administration? Sounds a lot like trying to deport the children of illegal immigrants who were brought here before they were old enough to pee by themselves. To paraphrase Steely Dan, “The things you think are logical I can’t understand.”

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