Social Security is a good investment

The Aug. 6 “Close Up” article, “Social Security isn’t the deal it once was,” asserts that Social Security is not a good investment. I disagree.

The study by the Urban Institute that the article cites uses erroneous assumptions, and minimizes the value of Social Security protection while overstating the Federal Insurance Contributions Act (FICA) taxes average workers pay.

I went back to the original report and referenced a single (male) wage earner retiring at age 65 in 2010 with average earnings of about $43,000. The Urban Institute Report shows that a wage earner paid $294,000 in lifetime Social Security taxes. I did the calculation myself and came up with a much lower figure — $129,567. Using data from the Social Security website, I calculated that a wage earner retiring in 2010, and earning maximum-covered earnings under Social Security, paid lifetime taxes of $129,567 — less than half of what the Urban Institute Report shows. I could not recreate the “average earnings” figure used by the Urban Institute, but clearly the lifetime taxes for an average worker would be far less.

The Urban Institute study is flawed because they made erroneous assumptions: One, it assumed FICA taxes would be put into an account earning 2 percent interest plus inflation, so its figures significantly overstate the taxes. This methodology is not standard or universally accepted, nor is there any real data showing that taxpayers would ever get those earnings even if they choose to save the money. Current assumptions on tax cuts are that money is spent, not saved; two, it adjusted taxes for current dollars, inflating the actual taxes paid; three, the examples it highlighted ignore that Social Security also provides protection similar to life insurance for dependent children and mothers, widows and surviving children and spouses of deceased-wage earners; and four, although it is hard to quantify the value of Social Security’s “life-insurance” protection, the study overlooked that Social Security protection carries with it a value equivalent to a life-insurance policy of $400,000 and a disability policy of $350,000.

So, by cooking the books, the study concludes that an average-wage earner paid $294,000 in taxes when a calculation using Social Security’s own data shows the maximum possible tax by a high earning wage earner is $129,567, and the tax paid by an average worker is far less than that.

— Dennis Wulkan, Seattle