[ad_1]
The S&P 500 SPX is up about 18% so far this year when you include reinvested dividends. The Nasdaq Composite Index COMP is up about 17%. The Vanguard Total World Stock index fund VT has earned 14% since Jan. 1, and the Invesco S&P 500 Equal Weight index fund RSP, which tracks the average of all the top 500 U.S. stocks, has risen 11%.
Your Social Security dollars? They’re up by about 1.2%.
Most Read from MarketWatch
Enjoy!
Labor Day seems as good a time as any to remind America’s 161 million paid workers how contemptuously the government treats our hard-earned dollars when it comes to our onerous payroll taxes.
First, Uncle Sam levies a hefty and basically regressive 15.3% tax on every dollar you earn, hiding half of it from view by claiming your employer pays that part. Guess what he pays it out of? Your wages, that’s what.
Then Uncle Sam blows the entire stack on low-earning U.S. Treasury bonds.
Finally, he turns around and expresses absolute astonishment that one of the world’s worst-run pension funds is going to run out of money in about a decade.
The Social Security trust fund had about $2.8 trillion in assets at the end of 2023, and if it had invested that money in a balanced portfolio of 60% global stocks and 40% bonds, it would have earned 10%, or $280 billion, through the first eight months of the year.
How much did it actually earn in interest income? The Social Security reports that through the end of July, that figure was $34 billion. That works out to just 1.2%. To be fair, the interest rate is on a rising trend because of Federal Reserve policy and bond yields, and this will be reflected in a slightly better second half of the year. But last year the total interest earned was 2.4%, and although the full rate for 2024 will be higher than that, it won’t be exponentially higher.
In other words, it’s pathetic.
This is not the fault of the Social Security Administration, which is required by law to invest the funds entirely in U.S. Treasury bonds. Instead, it’s the fault of Congress, which hasn’t changed the law.
Social Security should be invested in a balanced portfolio of stocks and bonds, like every other rational pension fund across America and around the world. And, indeed, like your 401(k).
State and local pension funds make a mockery of Social Security. The Teachers Retirement System of Georgia has earned 14.5% on its members’ money in the last fiscal year. The Louisiana State Employees’ Retirement System: 14%. The Oklahoma Public Employees Retirement System: 12.7%. The Minnesota State Board of Investment and the Teachers’ Retirement System of the State of Kentucky: 12.3% each. The Public Employees’ Retirement System of Nevada: 12%. The Ventura County Employees’ Retirement Association: 11.8%. The New York State Common Retirement Fund: 11.6%.
And so on.
Social Security: About 2.4%.
In other words, Oklahoma, Louisiana and Kentucky — among many others — are doing about five times better.
Gosh, if only Washington, D.C., had access to the kind of top financial expertise available in Oklahoma City, Baton Rouge and Frankfort, Ky.!
But I guess they don’t, so we’ll all just have to suffer.
Some people say Social Security couldn’t invest in stocks, because how could the trust fund pick those stocks without distorting the market?
Gosh, if only someone — let’s call them “Vanguard” — had invented index funds, we wouldn’t have this problem.
But I guess they haven’t.
As a result, in order to keep the program solvent, future Social Security benefits will be lower than expected for some, while payroll taxes will have to rise. The Congressional Budget Office says that to balance the books without changing benefits, Social Security taxes would have to rise by about 4.4 percentage points.
That would lift them from 15.3% to 19.7%, a 29% increase.
Nobody seems to care about this. Meanwhile, compare and contrast that with the absolute fury that has erupted in recent weeks at the suggestion that America’s richest oligarchs should have to pay any tax at all.
A 25% tax on unrealized capital gains applied to those with over $100 million would be designed to ensure that people with gigantic amounts of money would at least have to pay something in taxes. Many of them pay nothing at all, instead using their wealth as collateral to get cheap, tax-free loans.
A recent report estimates that America has just under 10,000 families with more than $100 million.
But the suggestion that they should all pay tax is apparently vastly more outrageous than the suggestion that 161 million working stiffs should pay 15.3%, or even 19.7%, on every dollar and see that money frittered away.
At times like this I am reminded of that un-American communist who once said, “Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.”
That commie? Abraham Lincoln. You can look it up.
Happy Labor Day.
Most Read from MarketWatch
[ad_2]
Source link