Taxing Social Security Benefits

When reading the Column Right article by Martin and Kathleen Feldstein (Nov. 5), I wondered why this article wasn’t on the left side of the page. Their article offers misleading arguments on why Social Security benefits should be taxed. The Feldsteins (who are economists) argue that upon retirement an individual would have paid $68,000 into the system and would receive five times this amount in benefits if that person lives to the average life expectancy. This argument is misleading on two points:

First, it ignores contributions by the employer who would have paid an equal amount into the employee’s account. The above individual would therefore have $136,000 in his Social Security account.

Second, it ignores the fact that the dollars paid into the system over the last 45 years are worth much more than today’s dollars. If interest (equivalent to Treasury bond rates) were added to the individual’s account, the individual would receive roughly one-half of the value of the money in his account by the time he reaches the average life expectancy. This ignores the interest that would be paid on the balance during the retirement years, a substantial amount. If the individual were handed the money upon retirement he could purchase an annuity which would pay on the order of $40,000 per year, much more than the $11,500 annual Social Security benefit. By this calculation the individual is receiving less than a third of the value of the money in his Social Security account.

GERRY NEWTON

Irvine