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FAQsDebunking Some Internet Myths |
MYTHS AND MISINFORMATION ABOUT SOCIAL SECURITY Myths and misstatements of fact frequently circulate on the Internet, in email and on websites, and are repeated in endless loops of misinformation. One common set of such misinformation involves the history of the Social Security system.
CORRECTING THE MYTHS AND MISSTATEMENTS Myth 1: President Roosevelt promised that participation in the program would be completely voluntary Persons working in employment covered by Social Security are subject to the FICA payroll tax. Like all taxes, this has never been voluntary. From the first days of the program to the present, anyone working on a job covered by Social Security has been obligated to pay their payroll taxes. In the early years of the program, however, only about half the jobs in the economy were covered by Social Security. Thus one could work in non-covered employment and not have to pay FICA taxes (and of course, one would not be eligible to collect a future Social Security benefit). In that indirect sense, participation in Social Security was voluntary. However, if a job was covered, or became covered by subsequent law, then if a person worked at that job, participation in Social Security was mandatory. There have only been a handful of exceptions to this rule, generally involving persons working for state/local governments. Under certain conditions, employees of state/local governments have been able to voluntarily choose to have their employment covered or not covered.
(The text of the 1935 law and the tax rate schedule can be found elsewhere
on our website.) Myth 3: President Roosevelt promised
that the money the participants elected to put into the program
would be deductible from their income for tax purposes each year (The text of Title VIII. can be found elsewhere on our website.)
The idea here is basically correct. However, this statement is usually joined to a second statement to the effect that this principle was violated by subsequent Administrations. However, there has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government. The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government." Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself. In 1983 Congress changed the law by specifically authorizing the taxation of Social Security benefits. This was part of the 1983 Amendments, and this law overrode the earlier administrative rulings from the Treasury Department. (A detailed explanation of the 1983 Amendments can be found elsewhere on our website.)
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Last reviewed or modified Wednesday Nov 07, 2007 |