More Social Security Reform
I'm going to keep writing about it until it's reformed, so if you're sick of hearing about it, tell Congress to get to work!
One of the proposals being tossed about recently (actually, it's been tossed around for much longer than recently, but I digress) is raising the income cap on Social Security taxes, or doing away with it completely. Some want to use this in conjunction with other reforms, and some claim this would solve all the problems on its own.
First, some basic background. Currently, you pay 6.2% of your income to Social Security (historical tax rates here). This shows up on your W-2's, pay stubs, and the like. Your employer matches that amount. A short digression, though -- while your employer officially pays that amount, it comes out of money that they budgetted for your hiring and continued employment -- basically, it comes out of money that they'd otherwise be paying you. When Medicare's 1.45% tax on both you and your employer is figured in, Social Security taxes just over 11.5% of your income. Getting back on the main track, the Social Security tax is currently capped (for both you and your employer) at $90,000 of income ($5580 in taxes from each). This increases every year (historical caps can be found here). Since I mentioned Medicare a bit ago, I should add that there is no cap on taxable income for Medicare. I should also add that Social Security taxes are done on an individual basis; whereas the income tax bracket cap doubles when you go from single to married filing jointly, it does not for Social Security -- if one spouse makes $120k annually and the other makes $30k annually, the first spouse still only has $90k subject to Social Security taxation.
There are a couple of areas in which plans variate: taxable income and benefits. On taxable income, some people propose starkly raising the cap ($140k is a number the AARP supports), some people support eliminating the cap altogether, and some people support something of a grace window (for instance, the first $90k would be taxed, the next $90k would not be taxed, and then everything above that would be taxed). On benefits, one variant would provide benefits for the extra taxes paid (I should add that Social Security is somewhat progressive -- you get a better return (though it's still a lousy rate of return) on lower-wage jobs than you do on jobs that approach the cap, so a person paying taxes on $300k in income would not be getting ten times the benefits as someone paying taxes on $30k of income), and the other would not provide any benefits for the additional amount paid in.
First, to address the taxes. It would be a rather drastic tax increase, and would adversely affect the economy. For one thing, businesses would now need to pay "their" 6.2% on the additional income. Despite what some people think, businesses aren't awash in money because they're lounging around screwing the little guy. They need to raise that money and a likely way of doing that would be cutting jobs (and it won't be the CEO with a seven-figure salary getting the ax). Alternately, they could raise prices, which hurts you as the consumer. So you either have an increase in unemployment or an increase in prices (inflation), neither of which strike me as a good option. Aside from the economic problems this creates, you're giving Congress extra money to play with, which we all know is a bad thing. Since Social Security currently brings in more money than it puts out, Congress is free to spend the extra money on whatever it pleases, and, historically, it does. That's why the trust fund is non-existent, as I've talked about already.
Now, on to benefits. Under the proposal where benefits would increase, actuaries estimate the trust fund would run out in 2075. As we've said, the trust fund doesn't exist, so we're looking at something more like 2050. It would definitely be a short-term solution. If benefits did not increase, it would remain solvent for longer, but not indefinitely. However, it would involve some people not only getting the normal miniscule return from Social Security, but actually getting a negative return. Plus, Social Security has for years been touted as a retirement savings program; this would expose that lie (even more than it already is) and show Social Security as the glorified welfare program that it is. That is something the Democrats should worry about.
Anyways, I need to be going now. More on Social Security to come.
One of the proposals being tossed about recently (actually, it's been tossed around for much longer than recently, but I digress) is raising the income cap on Social Security taxes, or doing away with it completely. Some want to use this in conjunction with other reforms, and some claim this would solve all the problems on its own.
First, some basic background. Currently, you pay 6.2% of your income to Social Security (historical tax rates here). This shows up on your W-2's, pay stubs, and the like. Your employer matches that amount. A short digression, though -- while your employer officially pays that amount, it comes out of money that they budgetted for your hiring and continued employment -- basically, it comes out of money that they'd otherwise be paying you. When Medicare's 1.45% tax on both you and your employer is figured in, Social Security taxes just over 11.5% of your income. Getting back on the main track, the Social Security tax is currently capped (for both you and your employer) at $90,000 of income ($5580 in taxes from each). This increases every year (historical caps can be found here). Since I mentioned Medicare a bit ago, I should add that there is no cap on taxable income for Medicare. I should also add that Social Security taxes are done on an individual basis; whereas the income tax bracket cap doubles when you go from single to married filing jointly, it does not for Social Security -- if one spouse makes $120k annually and the other makes $30k annually, the first spouse still only has $90k subject to Social Security taxation.
There are a couple of areas in which plans variate: taxable income and benefits. On taxable income, some people propose starkly raising the cap ($140k is a number the AARP supports), some people support eliminating the cap altogether, and some people support something of a grace window (for instance, the first $90k would be taxed, the next $90k would not be taxed, and then everything above that would be taxed). On benefits, one variant would provide benefits for the extra taxes paid (I should add that Social Security is somewhat progressive -- you get a better return (though it's still a lousy rate of return) on lower-wage jobs than you do on jobs that approach the cap, so a person paying taxes on $300k in income would not be getting ten times the benefits as someone paying taxes on $30k of income), and the other would not provide any benefits for the additional amount paid in.
First, to address the taxes. It would be a rather drastic tax increase, and would adversely affect the economy. For one thing, businesses would now need to pay "their" 6.2% on the additional income. Despite what some people think, businesses aren't awash in money because they're lounging around screwing the little guy. They need to raise that money and a likely way of doing that would be cutting jobs (and it won't be the CEO with a seven-figure salary getting the ax). Alternately, they could raise prices, which hurts you as the consumer. So you either have an increase in unemployment or an increase in prices (inflation), neither of which strike me as a good option. Aside from the economic problems this creates, you're giving Congress extra money to play with, which we all know is a bad thing. Since Social Security currently brings in more money than it puts out, Congress is free to spend the extra money on whatever it pleases, and, historically, it does. That's why the trust fund is non-existent, as I've talked about already.
Now, on to benefits. Under the proposal where benefits would increase, actuaries estimate the trust fund would run out in 2075. As we've said, the trust fund doesn't exist, so we're looking at something more like 2050. It would definitely be a short-term solution. If benefits did not increase, it would remain solvent for longer, but not indefinitely. However, it would involve some people not only getting the normal miniscule return from Social Security, but actually getting a negative return. Plus, Social Security has for years been touted as a retirement savings program; this would expose that lie (even more than it already is) and show Social Security as the glorified welfare program that it is. That is something the Democrats should worry about.
Anyways, I need to be going now. More on Social Security to come.
posted by DC | 4:33 AM
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