Rather Than Slashing Social Security How About Lifting the Cap?

[jtown1123]

Let's change the conversation on Social Security...instead of cuts how about lifting the FICA tax cap?

Good blog post from NCPSSM:

Rather Than Slashing Social Security How About Lifting the Cap?

By NCPSSM | June 6, 2012
The Center for Economic and Policy Research has released a new report looking at the effect of raising or lifting the payroll tax cap on Social Security contributions.

Incredibly, most people still don’t realize that workers who earn more than $110,100 don’t contribute on their full income and that simply removing that tax loophole for high earners would close the vast majority of Social Security’s modest long-term funding gap. Legislation introduced by Senator Bernie Sanders (I-VT) and Rep. Peter DeFazio (D-OR) would apply the same payroll tax already paid by more than 9 out of 10 Americans to those with incomes over $250,000 a year. Making the wealthiest Americans pay the same payroll tax already assessed on those with lower incomes should be a no-brainer and it is the solution Americans prefer rather than cutting already modest Social Security benefits.

Lifting the cap also recaptures income lost to Social Security because of the growing income inequality in this nation that has allowed a growing number of wealthy Americans to avoid paying their fair share. Robert Reich describes how:
Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. That 90 percent figure was built into the Greenspan Commission’s fixes. The Commission assumed that, as the ceiling rose with inflation, the Social Security payroll tax would continue to hit 90 percent of total income.

Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.

THE REST: http://www.ncpssm.org/entitledtoknow/?p=2386

[stevenleser]

1. Yes, I said this on air on Cavuto's show last Thursday.

Republicans/Conservatives/Libertarians hate this idea, but I think it makes sense.

[freshwest]

6. Thank you for doing that. Did Cavuto object?

I hate it when he talks over people. You are very patient person, and that's what it takes to get your words out with him.

[stevenleser]

8. I think that was right before he compared pensions for working class people to

"eating Chateaubriand every night". I think he also ridiculed the raising of the cap as "once again, the only solutions from the left are more taxes"

[freshwest]

11. Sigh. Air time is wasted on such an ideological play on words without opposition. Thanks again.

[4th law of robotics]

2. That seems fair to me

I doubt it will happen.

But that is what we *should* do.

[RC]

3. I have a better idea.

Get our Living Wage Jobs back into this country and stop bailing out the gamblers on Wall Street. Raising taxes on those most able to pay them, rescinding bu$h's tax cuts, would help tremendously also.
Just lifting the cap has some negative blow back we really don't want to get into.

As the article notes the trust fund currently holds $2.6 trillion in government bonds, so it is nowhere close to being unable to pay benefits. The whole point of building up the trust fund was to help cover costs at a future date when taxes would not be sufficient to cover full benefits. Rather than posing any sort of crisis, this is exactly what had been planned when Congress last made major changes to the program in 1983 based on the recommendations of the Greenspan commission.

>SNIP<

But Paul Krugman makes the argument in a more persuasive manner:

Social Security is a program that is part of the federal budget, but is by law supported by a dedicated source of revenue. This means that there are two ways to look at the program’s finances: in legal terms, or as part of the broader budget picture.

In legal terms, the program is funded not just by today’s payroll taxes, but by accumulated past surpluses — the trust fund. If there’s a year when payroll receipts fall short of benefits, but there are still trillions of dollars in the trust fund, what happens is, precisely, nothing — the program has the funds it needs to operate, without need for any Congressional action.


http://www.outsidethebeltway.com/social-security-isnt-cash-negative-we-are/

[freshwest]

7. Didn't the 'payroll tax holiday' Sanders objected to so strongly, decrease the fund?

[SickOfTheOnePct]

10. No, the money was paid into the fund from general revenues n/t

[Jim Lane]

15. It didn't decrease the Social Security Trust Fund, because of the pass-through.

The tax holiday, which reduced the revenues taken in by the Social Security system, was accompanied by a payment from the general fund to Social Security. Thus, the Social Security Trust Fund and the Social Security benefits paid out were all exactly what they would have been without this arrangement.

The fund that was decreased was the general fund of the U.S. government.

Here's another way to look at it: Suppose that, instead of the tax holiday, the government had left Social Security revenues and expenses completely untouched, but had put all that year's Social Security Administration data on a spreadsheet for use by the Treasury. The Treasury would then send a one-time bonus check to everyone who paid FICA taxes that year, with the amount of the check being tied to the FICA taxes paid (each FICA taxpayer would get about 16% of what he or she had paid in FICA taxes).

That's effectively what happened, except that the government, instead of collecting the full FICA tax and then mailing bonus checks, simply netted out the difference. The process didn't impair Social Security. The more cogent objection to it is that it was a poorly designed stimulus -- the unemployed got nothing, workers at the bottom of the wage scale got very little, and everyone making more than the cap (a bit more than $100k) got the maximum benefit. Thus, it didn't emphasize aid to the neediest and it didn't get the money to the people most likely to spend it and stimulate the recovery.

[JDPriestly]

19. The pass-through is money that was already owed to Social Security and borrowed by

the General Fund.

Lowering payroll taxes is a horrible idea because in the future, conservatives will point to it and say, see, Social Security is just another Democratic giveaway. Let's cut our costs and treat it like just another welfare crutch.

I oppose cutting payroll taxes.

I am 69. Our generation paid our full share, and our parents thrived in their senior years. Now it is our turn to be repaid, and Democrats are letting us down. To say nothing of conservatives who have always hated Social Security simply because it was a program that benefited working people and not the rich.

Raise the cap and make all income including capital gains subject to payroll taxes.

[SickOfTheOnePct]

23. The payrolll tax holiday has had no effect on the SS trust fund

The revenue is being made up by the General fund...the same amount of money is going in, just from two different sources.

[former9thward]

26. Where do you think the General Fund comes from?

The "general fund" owes SS debt because SS buys general fund debt. So yes it does reduce the SS fund or the whole thing is a ponzi scheme.

[SickOfTheOnePct]

31. Never mind, not worth the effort n/t

[JDPriestly]

35. If the money comes in from the General Fund, then Congress can decide to put less money in.

Substituting money from the General Fund for taxes dedicated to Social Security is short-sighted. It would be better to simply raise the cap.

[Jim Lane]

24. You could say the same about any federal expenditure.

The general fund has borrowed a couple trillion from the Social Security Trust Fund. Money is fungible. You could just as well say that money owed to Social Security was used for the stimulus package, or to blow up innocent civilians in Afghanistan, or to pay the salaries of the regulators who are implementing Dodd-Frank.

I was concerned about the payroll tax holiday when it was enacted, for the reason you state, but with the passage of time that seems to be less of an issue. The people who hate Social Security have always hated it and will continue to. The payroll tax holiday hasn't changed the politics in that respect. The real political problem is that letting the holiday end will be opposed by some (including some Democrats) as a tax increase. The longer it continues, the harder it will be to end it. Furthermore, the holiday is not a fair or effective stimulus mechanism.

Raising or abolishing the cap is a good idea, but I wouldn't apply Social Security tax to capital gains. It would be enough if we could just get capital gains subject to the regular income tax at the same rate as other income.

[JDPriestly]

34. Thanks for putting it so well.

"money owed to Social Security was used for the stimulus package, or to blow up innocent civilians in Afghanistan, or to pay the salaries of the regulators who are implementing Dodd-Frank."

That is what they are talking about when they talk about the national debt. A lot of it is owed to the Social Security Trust Fund. And yes, it really exists and is managed by the Secretary of the Treasury per the Social Security Act.

[99th_Monkey]

4. Totally! This is such a no-brainer, I can't believe

how many discussions about our SS "problem" on M$M I see & hear
that somehow fail to even mention this as a solution, unless Bernie
Sanders happens to be part of the discussion. Thank goodness for
Bernie.

I'm totally with you on this. Let's make it happen.

[hifiguy]

5. Why this simple solution is never mentioned

has never failed to baffle and puzzle me.

[freshwest]

9. I've seen it mentioned on some websites. Some of the higher income people don't want it to change.

[Dragonfli]

13. Because our party's soluton has already been agreed upon,

In 2045, the Social Security Trust Funds will be $8 trillion in arrears. In short, without changes, the inter-generational promise of Social Security—our nation’s most important social insurance program—is a false one.

This idea brief summarizes the trouble with Social Security, and proposes a “Savings-Led” Social Security reform plan that actually increases the program’s progressivity. Our plan makes roughly two dollars in benefit reductions for every one dollar in revenue increases, and achieves solvency while enhancing economic growth.

http://www.thirdway.org/publications/363

Our final solution only awaits "compromise" with the GOP to make it acceptable enough to both parties donor's to be successfully voted into law. They will reach agrreement in the end. but it will have nothing to do with raising the cap (they are not even talking about that)

[TheWraith]

30. You seem to have missed that Obama has loudly and repeatedly advocated lifting the cap.

Either that, or you're just ignoring it in order to do the "they're all the same" dance.

[Dragonfli]

36. He campaigns loudly and repeatedly yes, then he "Settles" for the third way option, it is a pattern

Each time he changes his mind/folds he goes with a press release reworded from the third way site, or worse, the US Chamber of commerce.

It may be time in the game for you to start paying attention.



Don't you remember the speeches from last election? Then remember what happened after, when decision time came?

Many did, including myself.
I am really happy that we got rid of that Patriot act, ecstatic that we have a public option, thrilled that he closed Guantanamo Bay.

And of course I am just glowing at how he rewrote the free trade acts to add protections.
I am just dizzy with his righteous speechifying.

We know what he will do, he told us during the Simpson/Bowles fiasco, you do remember that don't you?

[hugo_from_TN]

14. People that put more in take more out.

The amount you receive is tied to the amount contributed. I've never seen an analysis of how this impacts things overall.

[SickOfTheOnePct]

16. Excellent point

Even though payouts are progressive, there will still be an additional cost to raising the cap, in the form of higher payouts to the people paying in more money.

The alternative, capping the payouts at current levels so that all additional revenue is used to fill potential gaps, risks the program being considered "welfare", which would not bode well for its continued existence.

[JDPriestly]

20. If we made all income, including capital gains, subject to the tax, we would improve

the situation significantly.

Face it, Obama is not a real big fan of anything that helps older people.

I think we are facing big cuts to Medicare that will cost lives in the end. And Medicaid's funding for seniors in nursing homes will probably also be cut by the thieves and greedy in D.C.

The future looks bleak for the aging baby boomers and those of us already beyond retirement age.

If anyone ever wanted to work until they were 70, it's me. I even went back to school to try to insure that I could. And then came Bush and his economic turn-down. And most of us in our 60s were just forced out of the workforce.

So, I say that those who think people should continue to work until they are 70 ought to show us the jobs. 17-year-olds can't get jobs. How in the world are all the people (most with slight or great disabilities) between 63 and 70 supposed to compete?

[Jim Lane]

27. Here's an analysis, albeit outdated.

One issue that has to be addressed is whether we would continue the feature of the present system you mention -- that benefit payments are tied to contributions. If you say yes, then a corporate CEO who received seven-figure salaries for years, and paid FICA taxes on all of it (because the cap was lifted), will be getting an outrageously large monthly Social Security check. If you say no, then the link between contributions and benefits is weakened, and Social Security moves toward being a welfare program, instead of social insurance.

In 2001 the Social Security Advisory Board addressed the subject of raising or eliminating the cap as a way of dealing with the projected Social Security deficit. It stated:

In 2001, earnings in employment covered by Social Security that exceed $80,400 are neither subject to payroll tax nor considered for calculating benefits. This “contribution and benefit base” increases automatically each year with increases in the average wage. Currently, about 84 percent of all covered earnings are below the base, but this percentage has been falling from about 90 percent in 1983 and is projected to continue to fall to about 83 percent in 2010.

Making all earnings covered by Social Security subject to the payroll tax beginning in 2002, but retaining the current law limit for benefit computations (in effect removing the link between earnings and benefits at higher earnings levels), would eliminate the deficit. If benefits were to be paid on the additional earnings, 88 percent of the deficit would be eliminated.

Making 90 percent of earnings covered by Social Security subject to the payroll tax and paying benefits on the additional earnings (phasing in these increases in 2002-2011) would eliminate 37 percent of the deficit. This would increase the estimated maximum amount of earnings subject to Social Security taxes in 2011 to $241,200, compared to the projected level of $125,100 under present law (in current dollars). These changes would cause higher-paid workers and their employers to pay higher taxes. They would mean that higher-paid workers (those above the current taxable maximum) would receive a lower average rate of return on their Social Security taxes than they do today.

This report is supposedly available on the SSAB website but for some reason I couldn't open it. I referred to a copy hosted by Cornell Law School at http://www.law.cornell.edu/socsec/course/topic13/ssab_inventory_text.pdf (this excerpt is from page 23).

The projection in 2001 was that the percentage of covered earnings benefiting from the loophole (that's what we should call it) would increase slightly by 2010, and I think that proved correct. Therefore, the effect of raising or eliminating the cap would probably now be slightly greater than in this analysis.

[hugo_from_TN]

29. Thanks

It seems like keeping the benefits on the additional earnings would still result in closing most of the deficit.

If someone was paying a very large sum into the program every year, then I don't think having a very high payout should be considered outrageous, but I realize that isn't a popular view.

[ThomThom]

21. too simple and fair

too simple and fair

[Trajan]

12. hell yes

[The Second Stone]

17. I agree with lifting the cap up to removing it

altogether. It's a regressive tax.

[AnotherMcIntosh]

18. Too easy. Plus it would not help in moving Social Security to privatization.

[Dragonfli]

22. How about a “Savings-Led” Social Security reform plan that actually increases the program’s

progressivity? A plan that makes roughly two dollars in benefit reductions for every one dollar in revenue increases?

It is, after all, the Third Way (ie centrist Democratic) plan, we support and have elected centrists almost exclusively for our party leadership as well as our President.

No need to sweat this, our party has it's plan, that is to say, it's opening bid in the negotiations.

It's all been worked out see: http://www.thirdway.org/publications/363
After all, according to "Third Way" "the inter-generational promise of Social Security—our nation’s most important social insurance program—is a false one.

Only repubs would go against the Democrats and our current Centrist President over this one.
Our party needs our support and a pound of our elders flesh from us, I say we give until we are dead.

[Logical]

25. Then benefits would need to increase for those paying more

[MightyOkie]

32. Is that accurate?

If the income cap is lifted, then the wealthier would be kicking in more. Then, what you are saying, is that when the wealthier are eligible for SS, their benefits would line up with their contribution? If not, isn't lifting the cap just another tax on those making over 110K?

[Logical]

33. I think if they pay more in they should receive more back. Or it is a tax.

[NNN0LHI]

28. Raising wages would have the same effect

Get more people paying in at the current maximum and everything would be copacetic.

But that isn't going to happen with Americans love affair with their imported stuff.

Don