Now that we have temporarily moved on from a major restructure of health care perhaps there will be time for Social Security. 🤢
Part of the debate, although I doubt seriously, will include privatization of the program. The fact is a mandatory savings and investment program would provide individuals a greater return on their savings than the Social Security payroll tax for people who work a lifetime and live into retirement, but there are other issues to deal with. Let’s not discuss all that now.
The following clip from the Wall Street Journal is part of the debate about fixing Social Security.
It simply is not accurate, but even more important such a change would destroy the very concept of Social Security. In addition, the argument made is one-sided at best.
Social Security calculations are skewed to lower income Americans. The percentage of income paid in taxes is proportional to the benefits received. For example: a person earning $40,000 a year can expect about $14,616 in benefits or 36% of earnings. The millionaire on the other hand can expect a benefit equal to 3.3% of earnings while paying three times as much in taxes. The arguments such as that below never give the full story.
In addition, as you can see below even making such a change does not eliminate the shortfall and does not provide extra money for benefit improvements.
Over 75 years, eliminating the taxable maximum – imposing a 12.4 percent tax increase on high earners (who currently face a top rate of about 44 percent) – would close more than two-thirds of Social Security’s solvency gap. This would be an important contribution to solvency, but importantly it would occur largely by creating surpluses in the near-term and crediting more benefits that would actually increase future spending. Cash deficits would return within 10 years and continue to grow over time. As a result, this change would close just over one-third of Social Security’s structural gap by 2090. In other words, a substantial portion of the fix defers the problem, but does not fix it.
To improve the structural impact of this change, policymakers could reduce the size of benefits which would be paid out as a result of this new higher income being subject to the tax. In the most extreme case, if policymakers severed the link between contributions above the current taxable maximum and benefits altogether, eliminating the taxable maximum could close over 85 percent of the program’s solvency gap and over 55 percent of its structural gap. SOURCE: The Committee for a Responsible Federal Budget
QC Note: Eliminating the link between taxes and benefits essentially turns what was supposed to be a self-sustaining social insurance program into a welfare program.