At Work

There is an easy fix to assure Social Security is solvent …perpetually 

Social Security was designed to provide a floor income. It was never intended to be the primary source of income. Nevertheless, human nature being what it is, many Americans never got the message and never will. That being the case Social Security is essential, it must be preserved and in doing so the basic principles of funding must be observed. It should not be turned into a welfare program, everyone, including employers, must have skin in the game throughout the their lives.

None of this is hard to do and if we get passed the rhetoric from both far right and far left, it can get done. Forget the political and even economic noise and do something.

Based on the 2015 Social Security Trustees report, the Trust can remain solvent for 75-years if we do just one thing; raise the payroll tax 2.62% (2.59% based on recently released 2016 Trustees report) shared equally by employer and employee. That equals $655 ($645 2016 report) a year for the average working American, less than they spend on lottery tickets, a couple of tattoos, a basic cup of Starbucks a day and far less than smoking. Every working American can afford this, especially given the future security the investment provides.

Forget all the gimmicks pitting seniors against the young, the middle class American against the “rich.” That’s political pandering.

Here is all we need to do:

1️⃣ Raise the payroll tax rate by 1.31% on employers and employees

2️⃣ For any employer with 250 or more employees that does not contribute toward a retirement plan for its workers, the employee portion of the additional rate is reduced by 1% and the employer’s share be increased by 1%

3️⃣ Required the tax rate to be adjusted upward or downward annually based on the Trustees report on a 75-year solvency requirement. That way the Trust will account for economic conditions, interest rates and any modifications (improvements) to Social Security.

4️⃣ Adjust the CPI benchmark to more accurately reflect spending by the over age 65 population

5️⃣ Provide that any individual beginning Social Security benefits at the maximum monthly rate shall not receive a COLA for the first five years of collecting benefits and only every other year thereafter. This on the basis that those at the highest income level for taxable wages should be able to provide substantial supplemental income.

All this would be a lot easier if politicians would tell the truth about Social Security and stop playing games with the program and if Americans would accept there is no free lunch and if they want to rely on Social Security, they must pay for it.

If the above changes were implemented, we would never have to have another discussion about Social Security because it would always be funded and solvent.

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9 replies »

  1. I am surprised by this piece. It does not seem like your work.

    First, your understanding of solvent is misleading. The 75 year figure is not a certain measure. In fact, CBO thinks that the cost would be double that SSA says. There is no certainty.

    Second, you are quoting the wrong measure because SS is financed. It is not funded. Payroll taxes collected today create liabilities that may run for a century or more. Your number is the cost to make the problem of today’s voters a problem for their grandchildren. Perpetually is simply wrong. The cost of perpetually is about 3 times the cost of the 75 year financing cost.

    Third, the Chain-CPI is not a more accurate measure of inflation. It measures in part the behavioral response to inflation. Here is a longer article : http://www.forbes.com/sites/janetnovack/2016/05/16/how-not-to-fix-social-security/#4aa482655153

    Fourth, the average worker makes about $45,000 according to the SSA. The cost per year is closer to $1,200 per year. For that cost, today’s workers would get to argue about the solvency of the system with their kids. This comes from the demographic with the highest levels of poverty, households headed by someone under the age of 35.

    You are looking at taking 20% more from people in poverty based on misleading information which isn’t being honest with the public.

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    • 1.3% of $45,000 is $585 the workers share only, of course. By adjusting the tax rate annually to reflect changing conditions, you assure the 75 year measure is always extended. Yes, SS is not funded in the same sense as a pension plan which is why a fluid input is necessary.

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    • Not sure what you mean by payroll taxes today unless you relate them to the SS benefit earned by those paying the taxes which of course is correct. As you know, the actual dollars being collected are now paying the benefits for current beneficiaries. But that has always been the case.

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    • We know most Americans overly rely on SS and I don’t believe that is going to change. We also know that Americans are not adequately saving for retirement and probably won’t ever. That puts long term pressure on SS. Then there is the political call for expanded SS benefits. Even though I don’t agree conceptually, where we are headed is more government support in retirement. That being the case, let’s recognize that now and set in place the right contribution levels and set them so they remain at the right levels, even if we go higher than I quoted.

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  2. Other suggestions: Increase the full retirement age to 70. Increase the minimum age from 62 to 64. Eliminate the individual’s SS payroll tax completely starting at age 62. The last suggestion will give an incentive for the first two. These to be phased in over a 20 year period. Increase the income subject to SS taxes to $200,000, this to be phased in over 10 years.

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    • But all those change the dynamics of retirement and to some extent, the workplace. None of that is necessary if we stick to the basic idea that you pay for what you want to receive in the future.

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  3. As good as any other proposal , maybe better than most. However, it is more of the status quo – and taxpayers are left with an entitlement, not a contract, a program that can be changed anytime. That is, like 1983, no problem adding new benefits and taxes and whatever, whenever congress feels a need to buy votes.

    Elect Bernie or Hillary … Or those who follow them … Read their proposals to INCrEASE BENEFITS.

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    • It’s all you said, but perhaps sadly that’s what people want. At least this way they pay for what they want. Increase benefits and the percentage goes up.

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      • The irony of your post is that Bernie has a plan, one which increases benefits primarily for the richest segment of American and introduces massive benefit cuts on future workers. Hillary has no proposal to read. The Tax Policy Center looked at his tax proposals for her campaign. They did not find any evidence of even a penny more in payroll tax revenue. So Hillary will do nothing.

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