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Now is not the time to mess with Social Security

With the stock market on a wild ride for much of 2020, the predictability and reliability of Social Security are more important to Americans than ever.

(zimmytws/Bigstock) (ziimmytws/Bigstock)

Stocks and Social Security have made a lot of news lately: stocks because they’ve been lurching wildly since the start of September; Social Security because of the payroll tax deferment that President Trump’s administration has now forced on eligible government employees.

Why am I linking stocks and Social Security? Because the market’s wild ups and downs for much of this year show that the predictability and reliability of Social Security are more important to Americans than ever.

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This means, of course, that we need to keep a sharp eye on Trump’s Social Security tax maneuvers, which could undermine Social Security by gutting its finances and turning younger people against it.

It also means that we need to keep an eye on Joe Biden’s Social Security maneuvering. His proposal to raise Social Security taxes on people earning more than $400,000 a year but not increase their retirement benefits could undermine the program politically by turning it from everybody-pays/everybody-gets into welfare.

Got all that? Okay, here we go.

Stocks, of course, tend to have ups and downs. But these days, with stocks still at near-record levels — and with our economy suffering badly from covid-19 and from the inability of any arm of the federal government other than the Federal Reserve to keep stimulus flowing — the price swings seem wilder than ever. Especially since a handful of highly valued tech stocks like Apple, Amazon, Facebook, Microsoft and Google owner Alphabet are major influencers.

Rather than showing you this with Dow points or S&P points, I’ll show you in dollars, using the Wilshire 5000 Total Market Index. The Wilshire, launched by Wilshire Associates in 1974, lacks the history, cachet and mindshare of the Dow industrials or the S&P 500. But unlike them, the Wilshire shows gains or losses in dollar terms.

Through Friday, the Wilshire was down about $1.8 trillion — or 4.85 percent — for the month.

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But that overall number understates the Wilshire Whiplash. Look at the day-by-day swings. On Sept. 1, the index was up about $350 billion (0.91 percent); on Sept. 2, up $475 billion (1.28 percent); Sept. 3, down $1.40 trillion (3.61 percent); Sept. 4, down $325 billion (0.87 percent); Sept. 8, down $1.05 trillion (2.86 percent); Sept. 9, up $725 billion (2.03 percent); Sept. 10, up $600 billion (1.62 percent); Sept. 11, down about $25 billion (0.07 percent).

This is happening in the same year that the Wilshire fell about $12.7 trillion (34.95 percent) from its all-time high on Feb. 19 to its 2020 low on March 23. Then, it rose about $14.8 trillion (62.92 percent) to its all-time high on Sept. 2.

You can see from this, I think, that if you’re a market obsessive, the daily numbers can drive you even more nuts than usual.

What can also drive you nuts is trying to understand what Trump is up to when it comes to Social Security. It seems to change by the day — or by the tweet.

When Trump launched his Social Security initiative last month, he said that people earning up to $104,000 a year would be able to choose whether to defer their 6.2 percent Social Security tax payments from Sept. 1 through year-end. Then the federal government forced eligible employees to defer, offering them no choice.

Trump talks about forgiving the deferred taxes next year, which would require congressional approval (unless Attorney General William P. Barr rules otherwise, which wouldn’t shock me.) Trump also talked about eliminating the payroll tax entirely and financing Social Security out of general revenue.

That would turn it from an earned intergenerational benefit into just another federal spending program and end Social Security as we’ve known it.

But then again, so might Biden’s idea of collecting Social Security taxes on all salaries over $400,000.

Let me explain. This year, employees and employers pay Social Security tax on up to $137,700 of salary, a level that increases annually with inflation.

Biden would add the 12.4 percent tax — split evenly between employees and employers — to earned incomes above $400,000. That’s a steep tax rise. But Biden wouldn’t raise payers’ retirement benefits; he would just give their money to other people.

Biden is proposing some interesting ways to make Social Security better — but the Biden Bump-up is a huge flaw. Even though it applies to only a relatively small number of people, it risks turning Social Security from an earned benefit for everyone — a key to its popularity — into something that looks like welfare. And we’ve seen what happens to welfare programs in the United States when the political climate changes.