Socialism is a loaded word in the United States—a country where capitalism is the prevailing economic system and is the basis for the system of government. One situation in which the word tends to come up is when Americans look at government programs, especially Social Security.

Social Sec⭕urity is a form of social welfare, bu♛t to understand what the debate is about, let’s first review some terms.

Socialism As Government-Based E🏅conomic Production

Socialism is a form of economic production whereby workers co-own and co-produce goods and services and share in the profits. But t🧔he definition has been conflated with statist forms of government. Under this definition, the government owns and controls major industries, while the economy is centrally planned. As such, the government provides the majority of goods and services for its citizens.

Contrast this with 澳洲幸运5官方开奖结果体彩网:capitalism, where businesses and private individ🌼uals own the tools and other means ꦑof production. They keep all the profits while paying workers a wage. As such, the market controls the economy.

In most modern countries, a free or market-run economy is subject to federal and state legislation and regulations. As such, these countries do not practice pure, 澳洲幸运5官方开奖结果体彩网:laissez-faire capitalism. Some countries, such as Norway and Sweden, have m✨ixed econom🍌ies wherein providers of goods and services enjoy private ownership of resources, while citizens benefit from social-needs–oriented public services. This is known as social democracy or democratic socialism.

Though the U.S. is clearly a capitalist country, the government plays a role in economic and financial affairs. One of the hallmarks of its federal system is Social Security, a government-run benefits program instituted in 1935 during the Great Depression.

Let’s examine the key components of Social Security benefits—specifically, the extent to which they ꦰmight be considered a form of socialism. 

Who Runs the Social Security System?

The 澳洲幸运5官方开奖结果体彩网:Social Security system is run by the U.S. government—not individuals or businesses. It tracks earnings and benefits, runs the website that lets people check their benefits records, approves or denies retirement benefit applications, collects 澳洲幸运5官方开奖结果体彩网:Social Security taxes, and distributes retirement, disability,💖 and other benefits.

While the government hires independent contractors, such as Lockheed Martin, IBM, Dell, and others, to provide telecommunications, data storage, and other services, the government is in fulꦓl control of Social Security.

Who Decides How Much to Contribute and When?

The U.S. Congress decides how much of your paycheck is taxed to contribute to the Social Security fund. Here's how it works for 2024 and 2025:

• A total of 6.2% of your gross pay goes to Social Security, and your employer typically kicks in an equal amount.
• If you earn more than $176,100 in 2025 ($168,600 in 2024), you don’t have to pay Social Security taxes on any additional earnings above that amount.
• If you’re self-employed, you pay the whole 12.4%, though that amount is reduced slightly when you take a tax deduction for the employer portion of that tax.

It’s not unreasonable to consider whether, even if you work꧒ for someone else, you’re effectively paying the whole 12.4%—“bearing the incidence of the tax” because if your employer didn’t have to make Social Security payments on your behalf, it could instead include that money in your pa🔴ycheck.

The government also decides when you contribute. If you’re an employee, the 澳洲幸运5官方开奖结果体彩网:taxes are taken out 🎃of each paycheck. If you’re self-employed, you generally pay a quarterly estimated tax and reconcile your tax payments♒ when you file your annual return.

Below are the different revenue sources for the Old Age and Survivors Insurance Fund in 2023.

Social Security vs. Private Retirement Accounts

Individuals with private retirement savings accounts have more control over how much and when to contribute than they do with paying Social Security taxes. For example, if you work for a company that offers a 澳洲幸运5官方开奖结果体彩网:401(k) plan, you can decide what percenta🍰ge of each paycheck (if any) to redirect to that account—although government regulations place restrictions on how much you can contribute.

The annual limit on 401(k) contributions is $23,000 in 2024, a $500 increase from 2023. This amount increases to $30,500 if you are 50 or older, thanks to the $7,500 澳洲幸运5官方开奖结果体彩网:catch-up contribution allowed by the government. You cannot contribute to a Roth IRA if your 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) is $161,000 or higher for singles and $240,000 or higher for married couples filing jointly. This is an increase from the 2023 maximum limits of $153,000 and $228,000, respectively.

Who Decides What to Pay Out and When?

With a private retirement account, such as a 401(k) or Roth IRA, you decide when to withdraw money from your account, and how much to take out. With some retirement accounts, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) will make you pay penalties if you take out money before you reach a certain age or don’t withdraw enough money each year after reaching a certain age. Still, there’s m🎉uch more flexibility here than with Social Security retirement benefits.

With Social Security, the government decides how much to give you and when. You can decide when to start receiving benefits, but it can't be until age 62 (where you collect the lowest benefit) and age 70 (where you collect the highest benefit).

Once you start claiming benefits, you’ll get a check for the same amount every month, based🧔 on your lifetime earnings and your age ༒when you started claiming benefits. You can’t decide to withdraw more money in months when you have higher expenses and less money in months when you have lower expenses, as you could with an IRA or 401(k).

If you find yourself terminally ill at 40, you can’t claim retirement benefits early based on what you contributed over the years. Keep in mind that you may qualify for Social Security disability insurance.

But you can cash out your private retirement accounts at any time without getting anyone’s approval, albeit with a penalty in some cases. Brokerage firms won't make you prove that you can’t work if you want to take an early withdrawal from your traditional IRA (though the IRS might if you want to avoid penalties by claiming a 澳洲幸运5官方开奖结果体彩网:withdrawal for a 澳洲幸运5官方开奖结果体彩网:medically-related hardship).

Can You Opt-Out of Social Security?

Few taxpayers can 澳洲幸运5官方开奖结果体彩网:opt out of paying into the Social Security system. The Amish, Mennonites, and other religious groups that conscientiously object can sometimes claim a religious exemption from paying into the system as long as they also don’t receive or even qualify to receive any benefits. If you received any benefits𒊎, you may still qualify for a religious exemption if you repay them.

Some 澳洲幸运5官方开奖结果体彩网:nonresident aliens don’t have to pay into the system, depending on which type of visa they have. Foreign government employees based in the United States and college students who are employed by their university are also exempt.

What about opting in? Under a public retirement system or a Section 218 agreement, some state and local government employees are covered while not paying into Social Security. These employees aren’t allowed to opt into the program.

With private retirement savings accounts, it’s totally up to you whether to contribute. Even if your employer automatically enrolls you in its 401(k) plan in an attempt to nudge you into contributing, you can opt out if you wish.

How Are Social Security Funds Managed?

The Social Security system is set up as an intergenerational wealth transfer. This means that all contributions go into one collective pot, so the funds aren’t held in our individual names. The Social Security taxes the government collects from current workers pay for the benefits of current retirees.

Depending on when you retire, how much you earned, and your marital status, you may see a better or worse return in terms of gettingﷺ back more or less than you contribut♕ed.

The Threat of Depletion

Because different generations are different in size, this structure leads to what could be described as timing problems with paying out benefits. Taxes from the immense 澳洲幸运5官方开奖结果体彩网:baby boomer generation comfortably supported the retirement of the relatively small Silent Generation (born between 1925 and 1945, many of those years scarred by the Great Depression and war) and the 澳洲幸运5官方开奖结果体彩网:greatest generation (whose members fought in World War II).

With more and more boomers reaching retirement—and the fact that Generation X, the next generation, is smaller—it is estimated that Social Security’s reserves, also called the 澳洲幸运5官方开奖结果体彩网:Old-Age and Survivors🍎 Insurance (OASI) Trust Fund, could be depleted by 2033.

According to the 2023 annual report from the Social Security and Medicare Boards of Trustees, the estimated depletion date is 2033. The report also cited that the taxes being paid into Social Security beyond that year will only cover 79% of the scheduled benefits.

Millennials make up an even larger generation than the boomers, but it’s not clear how well their financial contributions will serve to support boomers and 澳洲幸运5官方开奖结果体彩网:Generation X, and how large future generations will be.

The Bottom Line

Because the American government plays such a dominant role in the 澳洲幸运5官方开奖结果体彩网:U.S. Social Security system—deciding how much and when employees and employers pay into the system, how much individuals receive in benefits when they get them, and preventing almost everyone from opting out—it only seems fair to say that ꦚSocial Security is, in effect, a form of democratic socialism; however, it may✤ also be considered a form of social insurance or a social safety net.

The program requires workers and their🐭 employers, along with self-employed individuals, to pay into the system througho💫ut their working years. The government controls the money they contribute and decides when and how much they get back after—and if—they reach retirement age. Having such a successful and beloved socialist-like program at the heart of such a committed capitalistic society is perhaps the ultimate paradox. Or maybe it’s just good common sense.