Skip to main content

View Diary: The Impact of Income Inequality on Social Security Shortfall (21 comments)

Comment Preferences

  •  Except ... The biggest checks go on the longest (2+ / 0-)
    Recommended by:
    katiec, Oh Mary Oh

    The people who receive the highest monthly SS benefits are the the people who live the longest, drawing their income replacement for 25 or 30 years - or more - while those who receive the lowest benefits because of lower lifetime earnings also tend to die sooner.

    Raising the cap can only improve 'solvency' if we change the nature of the program, as you say, turn it into a welfare program.

    On the other hand: how about dropping the cap to $70k?

    That will have no affect on the wage insurance for a majority of the population, who will still never hit the cap, but it will end the highest-income longest-living people benefiting inordinately from the system.

    Think about it.

    Am I right, or am I right? - The Singing Detective

    by Clem Yeobright on Wed Nov 14, 2012 at 07:56:46 AM PST

    [ Parent ]

    •  That's counterproductive economically (2+ / 0-)
      Recommended by:
      Odysseus, Clem Yeobright

      Because the system makes a bit of money off people at the high end -- that's because the proportionality between what you insure and the benefits you get is somewhat progressive.  You get back less for each dollar you insure at the high end than you do at the low end.  So, raising the cap brings in a little more money to the system, even if you have those higher payouts.  

      If you have some study that says high income people live so, so much longer that the progressiveness in the system is offset, then what you say might make sense.  

      •  May I pay you Tuesday for a hamburger today? (3+ / 0-)
        Recommended by:
        Odysseus, katiec, Oh Mary Oh

        The appeal of the SS cap is that the FICA income starts today while the benefit commitment starts some time in the future.

        Who knows what medical marvels will be developed in the next 50 years? Ask yourself, what would be the state of the SSTF if the cardiac bypass had not been developed over the last 30 years?

        What we DO know is that whatever marvels come along, they will extend life expectancy disproportionately more for higher-income people than for lower earners.

        When we tax income, we put it in the income tax.

        FICA is not the income tax; it's income replacement and it's fine the way it is.

        To answer your question: The income replacement in SS is 15% above the higher 'bend-point'.

        Am I right, or am I right? - The Singing Detective

        by Clem Yeobright on Wed Nov 14, 2012 at 09:26:39 AM PST

        [ Parent ]

        •  coffeetalk is right. Per numbers (1+ / 0-)
          Recommended by:
          Clem Yeobright

          Google 'social security bend points'and then examine their incidence. Short version:

          Lower income workers get a 'replacement ratio' (percentage of final earnings) at retirement of around 50%.
          Middle income workers get a replacement ratio around 40%.
          High income workers 30%. For a combined targeted average of 40%.

          Now high income workers get a larger check than middle income workers who get a larger check than lower income ones, the return is not in absolute terms progressive initially. Moreover since higher income workers tend to live longer their total ROI on lifetime earnings adds up over time. Still for the period in which low income workers initially collect there is less income shock. While higher income workers have more freedom to stay in the system and build their checks under two different formulas.

          So it's complicated. And doesn't reduce easily to progressive vs regressive. By design. People who advocate either lifting the cap or contrawise lowering it to $70,000 need to keep in mind the Law of Unintended Consequences. And perhaps ask themselves why they are smarter than the CES, Frances Perkins, and FDR who together established the structure.

          bruceweb.blogspot.com

          by Bruce Webb on Wed Nov 14, 2012 at 03:48:05 PM PST

          [ Parent ]

          •  Lowering the cap is my little joke (0+ / 0-)

            because - as coffeetalk says - the shock to the current SS budget would be intolerable. Unintended consequences indeed.

            I 'put it out there' to get people to realize what the wage insurance program is really about and - as you say - not to think the cap is a problem.

            Now, if one were designing the system from scratch ...

            Am I right, or am I right? - The Singing Detective

            by Clem Yeobright on Thu Nov 15, 2012 at 05:14:00 AM PST

            [ Parent ]

      •  Social Security is Strongly Progressive (0+ / 0-)

        It is designed to be progressive through the benefit calculations and with benefits being subject to income tax.  In addition, the Earned Income Tax Credit also brings progressive taxation on the contribution side.

        Marginal benefits paid by Social Security are paid out at 6 times the rate for low income contributions compared to the high income contributions.  (see http://www.ssa.gov/... ) In addition, the benefit is subject to income tax for higher income households but untaxed for lower income households.  Social Security is more than 6 times more progressive than the income tax.

        For the very wealthy, the Social Security benefit never gets spent by the recipient and is fully taxed through the estate tax.

        Lastly, high income earners in good and fair health tend to work far beyond 65 and 67, while they still pay into Social Security as long as they work. This more than offsets any additional benefits they may receive due to longevity.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Wed Nov 14, 2012 at 10:30:30 AM PST

        [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site