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How Congress can save Social Security [The reply]

Social Security

Several readers have commented in recent days on the proposal to eliminate or raise the payroll cap as one means of assuring the long-term viability of Social Security. After my Op-Ed, "The golden trade-off," was put to bed, I came across an especially relevant comment from an especially relevant source, the Congressional Research Service, or CRS. 

The service has operated for nearly a century as a bipartisan helpmate for the House and the Senate. In September 2010, the CRS filed a report examining one of the specific issues posed in "The golden trade-off," i.e., what would be the fiscal impact if Congress in fact raised or eliminated the cap. Here is the bottom-line essence of the CRS report:

"Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security Trust Funds. For example, if the maximum taxable earnings amount had been raised in 2005 from $90,000 to $150,000 -- roughly the level needed to cover 90% of all earnings -- it would have eliminated roughly 40% of the long-range shortfall in Social Security. If all earnings were subject to the payroll tax, but the [taxable] base was retained for benefit calculations, the Social Security Trust Funds would remain solvent for the next 75 years…"  (My italics)

In other words, eliminating the cap on wages would place the Social Security system on firm ground for the next 75 years. In return, the benefits paid to high earners would no longer be capped; their taxes would rise, but so too would their benefits.

All of which gives an upcoming Congress the opportunity to achieve a stunning solution to a vexing political problem.

As a related aside, I'd like to respond specifically to commenter limitgovt. You state: "Since the benefits received under these programs are fixed and not adjusted for income, the tax is already extremely progressive when compared to benefits received." The CRS proposal would remove the inequity cited in the first part of your comment. As for the second part, allow me to disagree. It's true that the benefits paid by Social Security are progressive, i.e., lower-income workers receive relatively more in benefits compared to their contributions. It's equally true that the payroll tax itself is inherently regressive, and will likely be paid for decades before a single dollar in benefits is received. Fact: Social Security is progressive on the back end, but it's highly regressive on the front end.

ALSO:

Sensible taxation

Roth IRAs: A real 'fiscal Frankenstein'

Reorganizing government out of the subsidy business

--Gerald E. Scorse

Illustration by Paul Tong / Tribune Media Services

 

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