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This is the first time in more than eight decades that American public relations programs have brought in more than $1 trillion in annual revenue.
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The latest Social Security trustees report is out, and since it’s been more than three decades, it’s time for some nail-biting.
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According to the latest report, the Social Security program managed to achieve its 2018 estimate of spending more money than it collected for the first time since 1982. Despite last year’s forecast from the administration, the House is at a real loss of $1.7 billion. , the program generated $3.1 billion in net revenue in 2018. While many factors contributed to its performance, strong economic growth was the biggest factor that led to this reflection.
Unfortunately, this does not change the long-term outlook for Social Security. That means it still faces a huge deficit between its new recession date of 2035 (one year after last year’s estimate) and 2093. Although a 2017 report projected a deficit of $13.2 trillion between 2034 and 2092. A new report estimates a shortfall of $13.9 trillion between 2035 and 2093, assuming no action by Congress. This would require a 20% reduction in benefits over the next 16 years to keep Social Security solvent for the next 75 years.
But this new data is only part of the story. Perhaps the biggest news comes from the trustees’ report that Social Security collected more than $1 trillion in revenue for the first time in its history in 2018. Side note: He spent more than $1 trillion for the first time.
How does America’s most important public relations program generate $1,003,400,000,000 in revenue in one year? Let’s take a closer look.
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Although the National Security Agency has three funding sources, they are not equally important. The most important piece of the tax puzzle is the 12.4% withholding tax on income up to $132,900 in 2019. In 2018, $885.1 billion of the $1,003.4 billion the program collected was due to payroll taxes.
What’s interesting about the tax credit is that it contributes to the majority of Social Security’s income, allowing it to avoid a small amount of taxable income. First, only income (ie wages and salaries paid to you) is subject to income tax, excluding investment gains.
And second, the payroll tax comes with the previously mentioned $132,900 income. Any wages or salaries up to this amount are taxable as income exceeds the exemption amount. This means that while more than 90% of working Americans pay into the program with every dollar they earn, a small percentage of well-off workers have their money income and taxes. In 2016, approximately $1.2 trillion in revenue was avoided in payroll taxes, denying the Department of Defense nearly $150 billion in revenue.
Why not increase or eliminate deposit and deposit tax? The two-fold answer is that there aren’t enough votes in the Senate to do this, and that the wealthy pay their fair share because there is a cap on the number of benefits the program pays each month during full retirement years.
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It should also be noted that many people are not paying the full 12.4% tax. If you are employed by someone else or a company, your employer covers half (6.2%) of your tax bill and you cover the other half (6.2%). But if you’re self-employed or a sole proprietor, you can earn more than 12.4 percent on your income up to capital.
Social Security’s second revenue source is an important, but important, income tax. In 2018, the tax on profits led to $35 billion in revenue, down from $37.9 billion in 2017. The slight movement comes on the heels of changes to the US tax code through the Tax Cuts and Jobs Act.
In 1983, the Reagan administration passed the final version of Social Security, reforming the program from both sides of the political aisle. One such inclusion is the introduction of a tax shelter benefit when a certain amount of money is raised. If a single taxpayer’s adjusted gross income (MAGI) and half of their earnings exceed $25,000 or $32,000 for a married couple filing jointly, up to 50% of Social Security benefits are available subject to regular federal income tax. It was first diagnosed in 1984 and is estimated to affect one in 10 elderly families.
In 1993, under the Clinton administration, a second income tax was added, which allowed a single or married couple to disclose up to 85 percent of their income on federal taxes. The threshold (MAGI plus one-and-a-half benefits) is set at $34,000 for an individual and $44,000 for a married couple filing jointly, and the law is expected to affect fewer than 1 in 5 households.
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Today, 35 years after the benefit tax began and 25 years after it was expanded, nearly half of seniors pay taxes on their Social Security benefits. This is due to the inability to adjust to the increase in the income threshold associated with the tax on profits. Assuming these practices are not sustainable, it is expected that most seniors will receive taxes on their benefits over time.
The third and final source of funding for Social Security is the interest earned on about $2.9 trillion in securities. Net worth is the total surplus Social Security has created since its inception. In 2018, interest income for the program generated $83.3 billion.
The financial security of Social Security is often a hotly debated topic. Some Americans believe that lawmakers on Capitol Hill squandered the money, used it to finance the war, and planned to never get back retirees in the future. However, this is not true.
The program’s net deposits are invested in special bonds and, to a lesser extent, certificates of debt as required by law. These interest-bearing instruments allow the government to borrow money, but each coin is considered a loan. Government borrowing for any specific item is not listed in the budget. Instead, it could go to defense spending, education, health or any other federal budget.
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Here’s the part that most people overlook: The federal government pays interest on what it gets from Social Security. In March, the program yielded an average of 2.85% across bonds and various maturities. If the government pays back the money it borrows, that means the Social Security deposit will kiss the income every year.
If these reports are correct that Social Security will exhaust its resources by 2035, this source of revenue will disappear, leaving two sources of revenue to support Social Security, taxes and the income tax. .
And that, my friends, is how the largest public relations program in the United States managed to pull in over $1 trillion in revenue last year.
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Social Security Disability Faq [infographic]
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Invest well with The Motley Fool. Get stock recommendations, portfolio guides and more from The Motley Fool premium services. After all these years of providing retirement advice and advising policymakers on retirement policies, I’ve found that the best financial advice is to delay claiming Social Security.
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I am not saying that Congress should end people’s ability to receive reduced benefits at age 62. If you have no choice, say so in advance. But for many of the 28 million senior workers who have the right to choose, I’d say delay is the best option.
It’s hard to convince someone to delay responding. People love scarcity. Cold hard money. And when they can wait, they can say they have more chance
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