Warren Buffett has said a lot about investing through the years. But it turns out he's more than happy to share his thoughts on Social Security as well. And it just so happens to be one issue both he and President Obama undoubtedly agree on.
The surprising reality
In 2011 Barack Obama was asked about the future of Social Security by a woman who suspected she'd be working another 25 years and had the worry that "I don't know if it will be there when I need it, and I'm concerned about that."
While Obama asserted "Social Security will definitely be there when you retire," to ease any concern, he said there are undoubtedly questions about its future, and change must be made regarding it. He went on to say:
I'll just give you one example of a change that would make a difference in Social Security. Right now you only pay a Social Security tax up to a certain point of your income. So a little bit over $100,000, your Social Security -- you don't pay Social Security tax.
Now, how many people are making less than $100,000 a year? Don't be bashful. The point is, for the vast majority of Americans, every dime you earn, you're paying some in Social Security. But for Warren Buffett, he stops paying at a little bit over $100,000 and then the next $50 billion he's not paying a dime in Social Security taxes.
It's a somewhat startling assertion. But that's the reality of social security taxes.
In 2013 the maximum amount of earnings social security taxes were collected on stood at $113,700. And as you can see in the chart below, 90% of Americans fell below this line, and yet they represented just 50% of the income which was earned:
The honest remarks
So what does one of those who find themselves in the top 1% think about the issue? Consider Buffett's words from a 2011 op-ed in the New York Times entitled Stop Coddling the Super-Rich:
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
He went on to note that in 1992 the 400 richest individuals in America had a tax rate of 29.2%, but by 2008 that number had dipped to 21.5%. And he himself suggested if he were in control he'd "leave rates for 99.7 percent of taxpayers unchanged," but raise rates for those making $1 million or more.
As the White House would say, this is now known simply as "The Buffett Rule: A Basic Principle of Tax Fairness."
But as he noted in his 2005 annual meeting, he believe Social Security also needed to be reformed.
He said at the time that the cut-off needed to be raised or eliminated altogether, and that perhaps the government should consider raising the retirement age, which it last did in 1983.
That's the perspective of the Democrat up here, so you might be surprised to hear from the Republican that I think the Republicans are out of their cotton-pickin' minds to be taking on this issue at this time. The thought that more of our GDP will be going to the elderly over time is not [an abomination] to me. Social Security is very successful. Apart from disability – a small part – there's almost no fraud...it rewards work, it's low cost. It's one of the most successful government programs ever.
Obama concluded his remarks in 2011 by adding:
So if we just made a little bit of an adjustment in terms of the cap on Social Security, that would do a significant amount to stabilize the system. And that's just an example of the kinds of changes that we can make.
As Buffett and Munger note, no matter which side of the aisle you find yourself on, one has to hope this is one thing all Americans can agree needs to be changed.
How to get even more income during retirement
The reality is -- and undoubtedly Buffett would agree -- Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.
Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.