Sunday, November 21, 2010
Clarifying Longman's ideas on Social Security and "other people's children"
Normally a worker earns his benefits (and sometimes those of his or her legal [opposite sex, for now] spouse) by paying FICA taxes on wages, which function more or less like annuity premiums.
The government (that is, the Social Security Administration) then has a legal obligation to pay the retiree benefits at retirement age (now 66, or allowing reduced early retirement). The “obligation” was earned by the FICA taxes being paid (which usually the employer matched, except in case of self-employment).
However, Longman is right in saying that the government’s ability to actually pay benefits depends on practice on the wages earned by “other people’s children” if you were childless. Without OPC wages (in a “Children of Men” world), the SSA would go bankrupt, and less benefits would be paid according to some court proceeding.
So his proposal to exempt parents from some FICA tax could make sense.