Taxes, Social Security, and Me
As much as I would like to deny it, I am creeping ever closer to retirement, and adding my name to the rolls of all of those who receive government assistance – in my case, Social Security payments.
After 42 years of steady labor – two years as a high school chemistry teacher, thirty years in the chemical industry, and the last ten years on the faculty and staff of Ursinus College, I have decided to retire from full time employment in June. Thereafter, I plan to teach two days per week as a member of the adjunct faculty at Ursinus, do some project consulting for industry, and tackle the huge stack of topics that I have been wanting to write about — as blog entries, articles for possible publication, and even work to update a book I wrote years ago.
Although the faculty work is fairly predictable, none of these other endeavors are guaranteed to being home any bacon, so I investigated drawing Social Security two years earlier than my full retirement age of 66, as a supplement to the pension that I (thankfully!) earned during all of those years working in the chemical industry.
I knew, of course, that there are limits on outside income if you draw Social Security early – they take back $.50 in benefits for every dollar you make in excess of $14,000 per year. As I considered this for my own situation, it got me to thinking about the broader consequences of this policy.
The policy is set to discourage people like me from retiring early and drawing those scarce Social Security Trust Fund dollars any sooner than necessary. I get that.
But what about the guy who loses his job in a layoff at age 64? The guy who cannot easily find work and so decides to draw on the Social Security that he absolutely needs in order to make ends meet. Once he does that, his search for work becomes a little less intense — that part-time, no-benefits job he finally finds that pays $24,000, really doesn’t — it pays $19,000, once half of it (above $14,000) is deducted in the form of a social security penalty. Similarly, the better job that pays $30,000 actually pays $22,000.
If his employment opportunity is through self-employment as a contractor, then he is dealing with the need to not only pay federal state and local tax, but to also pay both sides of FICA and medicare taxes — a 15% bite in itself, which cannot be split between employee and employer in this instance.
Once he factors the tax payments and the Social Security penalty, this part-time job isn’t looking all that attractive. So he decides to spend his time fishing, and watching what he spends a little more carefully. The upshot is that the United States Treasury is paying him, and not receiving any tax revenue in return. That’s just bad tax policy.
So while we are all fretting over the Buffett rule, and the various iterations of the millionaire’s tax, let’s not lose sight of the fact that the entire tax and entitlement system is broken, and needs a top to bottom overhaul. Nothing short of that will be able to address all of the various deficiencies we now have.
My own plan is to keep working, keep contributing where I can, pay self-employment taxes that add up to a significant portion of everything I bring in — and hope to come out ahead of what I can draw from Social Security by doing nothing more than playing golf.
But if the economy is not strong, if clients don’t think I can help them, if nobody wants to compensate me for my many pearls of written wisdom, then I will probably conclude that my continuing self-marketing efforts are not really worth it — and default to the Social Security payment alternative and work on my chipping.
That might be a smart choice for me. But then another person drops out of the work force, and the government – and society – gain no benefit. And that I do not get.