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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.
If we want to go back to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000. Presto. Social Security’s long-term (beyond 26 years from now) problem would be solved.

Unfortunately, rather than embrace lifting the payroll tax cap, many Republicans and Democrats alike now seem to be rallying behind the Bowles-Simpson (BS) plan, which proposes two-thirds benefit cuts over one-third income increases.
Ask your member of Congress…does he/she support cutting benefits for middle-class Americans rather than restoring contributions by the wealthy to their historic levels?

This was cross-posted on Entitled to Know

Originally posted to NCPSSM on Wed Jun 13, 2012 at 12:42 PM PDT.

Also republished by Social Security Defenders.

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Comment Preferences

  •  Agree Completely - Raise the Cap (13+ / 0-)

    and you can 'fix' Social Security for the foreseeable future.

    Of course, the Republican plan would be to raise the retirement age to 70, which in addition to being a huge benefit cut for the middle class, it would compound the unemployment problem by forcing older workers to stay on the job rather than retiring and opening up their positions for younger workers.

    •  If the Republicans get a chance, (0+ / 0-)

      they will probably do it themselves, just to get to take the credit for their benevolence.  Most of the money that change would take in would come out of the top half of the middle class, with the assumption that they can afford it.

      Democrats - We represent America!

      by phonegery on Wed Jun 13, 2012 at 01:11:46 PM PDT

      [ Parent ]

    •  Benefits formula: AIME (1+ / 0-)
      Recommended by:
      coffeetalk

      lifting the cap would create something like a 16k benefit check. And remove the reason for the Earned Income Tax Credit, something I'm sure the GOP will take advantage of.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Wed Jun 13, 2012 at 01:32:27 PM PDT

      [ Parent ]

      •  For how many beneficiaries? (2+ / 0-)
        Recommended by:
        Brooke In Seattle, bear83

        I fully understand that lifting the cap would increase the benefit for those retiring with very high creditable earned income.

        But how many?

        Further, the formula wasn't written in stone on Sinai. We can agree to not have $16k a month SS checks go out if would be a net drain on the trust fund. It's been modified before.

        I find it difficult to believe that so many people would qualify for that size check with the current formula unchanged to cause that to be the result, but I'm ready be be proven wrong.

        When you are right you cannot be too radical; when you are wrong, you cannot be too conservative. --Martin Luther King Jr.

        by Egalitare on Wed Jun 13, 2012 at 02:08:52 PM PDT

        [ Parent ]

        •  That would be max benefit for the richest (0+ / 0-)

          ,,,, the AIME formula dates back to circa 1950.

          Max monthly now is $3266 based on $110,100 income cap,

          http://www.ssa.gov/...

          16k comes from a DK discussion with Bruce Webb last year, hes extraordinarily knowledgeable on All things SS.

          10 million over 35 years divided by 420 is 23k, so that 16k maybe low, heres a calulator

          http://www.socialsecurity.gov/...

          You might find its real easy to come up with some insanely high numbers.

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Wed Jun 13, 2012 at 02:54:17 PM PDT

          [ Parent ]

      •  Don't forget, social security benefits are taxable (0+ / 0-)

        to the extent of half when over $25,000 and 85% when over about 32,000 when single, and a very slightly higher number when married. All of that hot money in the big SS checks is going to be taxed again, after being taxed for SS in the first place. Ain't no free lunch when SS is concerned.

  •  How DARE you be . . . (5+ / 0-)

    . . .

    REASONABLE

    ??

    /s(?)

    The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

    by semiAdult on Wed Jun 13, 2012 at 12:54:16 PM PDT

  •  I favor raising the cap to $200,000 (5+ / 0-)

    and allowing the benefits for those higher contributions to provide a higher SocSec benefit. Eliminating the cap and capping the top benefit would end SocSec as we know it. Those two changes would undercut everything about how FDR structured SocSec so that it would always have broad bi-partisan support. By eliminating the cap, capping the benefits, and raising the monthly benefits for others you have turned SocSec on its head.

    SocSec was never intended to be another income tax, or a system of wealth redistribution. It was intended to be wage insurance where the contributions made by you and your employer funded a portion of your salary after you retired, as well as providing some other insurance benefits. High income earners don't need to insure a large part of their income and capital gains and interest income don't need to be insured because they aren't tied to employment and don't stop when you retire.

    "let's talk about that"

    by VClib on Wed Jun 13, 2012 at 12:56:42 PM PDT

  •  Been saying this for years - 70% of shortfall in (5+ / 0-)

    social security is actually due to the income side, as BusinessWeek magazine demonstrated a couple of years ago, and other analyses have shown.

    If you compare what has happened in the last 29 years since the 1983 law change, you'll see that the commission actually did a pretty good job.  They knew people were living longer, and they did comprehensive estimates of all factors that go into social security - GDP growth, inflation rate, wage increases, interest rates, population growth (or lack thereof), increase in average lifespan, etc.  

    Comparing back, about 20% of the shortfall is due to retirement benefits > estimated, another 6% due to disability benefits > estimated, another 4% due to various macro economic (wage rate, interest rate, inflation, etc.) influences >< their estimate.  

    The remaining 70% is due to less $$ taken in, precisely due to the problem you've described, with the 1% taking in more.  Realize - with the 1% moving up from 11.6% to 20% of the income, this is an increase of about 9%, but the effect is much worse - to get from 11.6% to 20%, they took in about 29% of the gains, so social security has taken in $0 from 29% of the gains in income over the last 30 years.

    Raise the cap - and not just on those over $250K, raise it to the freaking $180K it should be to capture 90%. If you want to supplement it by taxing those over $250K, fine, but raise the cap in accord with the 1983 law.

    Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear. ~William E. Gladstone, 1866

    by absdoggy on Wed Jun 13, 2012 at 01:01:17 PM PDT

    •  I have no problems with raising the cap (1+ / 0-)
      Recommended by:
      eatbeans

      as long as the benefits rise in proportion.

      "let's talk about that"

      by VClib on Wed Jun 13, 2012 at 01:03:44 PM PDT

      [ Parent ]

      •  it's going to be real popular (0+ / 0-)

        with those making 200K to hear that their SS tax will double and their benefits will increase by 0% +/- zero%

        They're going to love that $6000 pay cut

        •  eatbeans - that's not my idea (0+ / 0-)

          Under my plan if someone had 40 quarters at $200K/yr their monthly SocSec benefit would be nearly twice that of someone who had 40 quarters at $100K/yr. I do not think it would be fair to raise the cap and not raise the benefits.

          "let's talk about that"

          by VClib on Wed Jun 13, 2012 at 01:11:34 PM PDT

          [ Parent ]

          •  A graduated raise in benefits is fair (1+ / 0-)
            Recommended by:
            mike101

            "nearly" 1:1?

            Under my plan if someone had 40 quarters at $200K/yr their monthly SocSec benefit would be nearly twice that of someone who had 40 quarters at $100K/yr. I do not think it would be fair to raise the cap and not raise the benefits.
            No deal.

            Graduated means progressive. You do know about that.

            Both parties are beholden to their corporate sponsors. The Democratic Party deigns to throw us a few bones from the table on which to gnaw and squabble over, but it's just kabuki.

            by ozsea1 on Wed Jun 13, 2012 at 01:16:48 PM PDT

            [ Parent ]

            •  I think the "nearly" means there is some (3+ / 0-)
              Recommended by:
              VClib, ColoTim, mike101

              progressivity.

              There already is some progressivity built into the system -- the person earning $50,000 a year gets a higher percentage of insured wages back at retirement than the person earning $100,000 a year.  Simply raise the amount of wages insured, and increase the retirement benefits along that same existing scale.

              •  This I can agree with (2+ / 0-)
                Recommended by:
                mike101, texasmom
                Simply raise the amount of wages insured, and increase the retirement benefits along that same existing scale.
                It works, it "ain't broke", so don't fix it.

                We agree.

                Both parties are beholden to their corporate sponsors. The Democratic Party deigns to throw us a few bones from the table on which to gnaw and squabble over, but it's just kabuki.

                by ozsea1 on Wed Jun 13, 2012 at 02:14:40 PM PDT

                [ Parent ]

            •  ozsea - that's what the "nearly" means (2+ / 0-)
              Recommended by:
              ColoTim, texasmom

              I am totally OK with the progressive feature of SocSec benefits and would expect a similar formula would be used as the cap is raised.

              "let's talk about that"

              by VClib on Wed Jun 13, 2012 at 01:27:52 PM PDT

              [ Parent ]

              •  Republicans will want a 2:1 or 3:1 before they (0+ / 0-)

                consent to raising taxes one dime.  If someone has 40 quarters at 200K, they'll want the benefit to be 3x that for someone at 100K, and 6x someone at 50K.  And they'll want that benefit to be phased in immediately, so that it counts as having had 40 quarters of contribution at 200K.  That would be what your retirement pay would be calculated at, not the fact that you only paid that amount the last few quarters, if even one quarter.  They'll want you to be able to collect it now, probably even retroactively.  That's their price for allowing it to go through now.

                •  ColoTim - I doubt it (1+ / 0-)
                  Recommended by:
                  ColoTim

                  What you are suggesting puts more financial stress on the SocSec system so I don't think the GOP will propose it, but I don't know. Let's see what happens.

                  "let's talk about that"

                  by VClib on Wed Jun 13, 2012 at 01:55:03 PM PDT

                  [ Parent ]

                  •  I don't know that they'll put the health of SS (1+ / 0-)
                    Recommended by:
                    ozsea1

                    above their greed.  They made concessions in 1983, but these days there doesn't appear to be any limit to their greed or sense of entitlement, especially if they'd have to have their taxes increased.  If SS were to fail because of it, I don't know that they'd be sad, because then they'd get their privatization they've been trying for.

            •  And, by the way, SS was not designed to be (2+ / 0-)
              Recommended by:
              eatbeans, VClib

              "progressive." Go back and read what FDR said about it. It was designed so it would be viewed largely as "you get what you pay for." That's precisely what makes it so popular -- the fact that what you get is directly tied to what you pay in, regardless of your "need."  If you insured $50,000 in wages, your benefit is exactly the same regardless of whether your SS check is all you have or you've just inherited $1 million for a long-lost uncle.  FDR specifically wanted it that way so it wouldn't be, in his words, "a dole" (welfare for old people).  

              There's a bit of progressivity built into the calculation of benefits, as I said. But SS is not supposed to be progressive the way the income tax is.  Too much progressivity turns it into welfare for old people.  

        •  I make that, and I'm fine with it - it's the way (1+ / 0-)
          Recommended by:
          Roger Fox

          it was set up to run in the first place. The fact that income inequality screwed up the metric by which the cap was raised does not mean that the cap shouldn't be re-set to 90%.

          Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear. ~William E. Gladstone, 1866

          by absdoggy on Wed Jun 13, 2012 at 02:10:33 PM PDT

          [ Parent ]

      •  I know that is one option from CBO reports (2+ / 0-)
        Recommended by:
        VClib, ColoTim

        and doing that, lifting the tax cap and the benefit cap, results in major long term improvements in projected Social Security Solvency.

        It is the option I advocate whenever the discussion occurs.

        "All things are not equally true. It is time to face reality." -Al Gore

        by Geek of all trades on Wed Jun 13, 2012 at 01:12:30 PM PDT

        [ Parent ]

        •  fix the economy leave SS alone (0+ / 0-)

          except for adjusting the income cap to the 90th percentile.

          I've read every Trustees report since 2005... try it you;ll like it.

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Wed Jun 13, 2012 at 01:43:22 PM PDT

          [ Parent ]

      •  AIME formula (3+ / 0-)
        Recommended by:
        VClib, tardis10, mike101

        Benefits rates are formulated by income.

        By removing the cap, we create about a 16k monthly check. Cap is currently at about the 83 percentile, traditionally its been kept at 90%.

        The logic behind the Earned income tax Credit was to make up for the regressivity of FICA, removing the cap removes the historical reasoning behind the EITC.

        Meanwhile whatever ails SS can be fixed by fixing the economy, in the 2012 Trustees report, they provide Low cost, Intermediate cost and high cost scenarios, in the low cost scenario SS is good thru 2090.

        The low cost scenario is relaint on GDP of about 2.85%, workforce growth of better than .5%, estimates run from .2% to .7%, currently at about 1%, 1.5 million per yr growth, with a current base of 154 million workers.

        Once the Boomers pass, (me) by 2060 assets grow quickly. I simply see no reason to touch SS except for adjusting the cap back to the 90th percentile, for at least 10-12 years.. . fixing the economy, creating jobs & wage growth... does wonders for the income side of SS.

        FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

        by Roger Fox on Wed Jun 13, 2012 at 01:17:15 PM PDT

        [ Parent ]

    •  The majority of the shortfall is due 2 slow growth (1+ / 0-)
      Recommended by:
      tardis10

      raise the cap to the 90th percentuile yes....

      Other wise fix the economy and leave SS alone.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Wed Jun 13, 2012 at 01:18:53 PM PDT

      [ Parent ]

  •  Way too simple! (2+ / 0-)
    Recommended by:
    Roger Fox, ColoTim

    And believe me, it IS the solution. Social security is really not in trouble, and lifting the cap with COLA solves everything. A more innovative idea may be to create a "donut hole." In some communities making say 110,000 a year to support a family doesn't make you rich. And the benefits you will get won't reflect it. But if the tax quit at its current level and kicked in again, say, at 200,000 for some range, it would solve the SS issue for the rest of the century...and I don't expect to live longer or care beyond that. Do you?

    •  Fix the economy, adjust cap to 90th percentil (1+ / 0-)
      Recommended by:
      MsTribble

      and then leave SS the hell alone, the Trustees low cost scenario says SS is good thru 2090.....

      If anyone wants the details see my longer comment, if you need a citation leave a comment here, I will provide.

      A horridly simplistic dairy.....

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Wed Jun 13, 2012 at 01:39:46 PM PDT

      [ Parent ]

  •  I think you are talking about two different things (4+ / 0-)
    Recommended by:
    VClib, Roger Fox, wordene, Bruce Webb

    here: (1) raising the amount of wages that are insured up to 90%, which is absolutely in line with what SS is meant to be, and brings it back to historical norms, and (2) making all wages subject to social security which -- unless you also were going to pay out huge retirement benefits to millionaires -- would fundamentally change the nature of SS and make it into the very "welfare" system that FDR did not want it to be.  

    First, it's not a "loophole."  The fact that SS taxes are only paid on a certain amount of wages is because SS is wage insurance, and there is a limit to how much one can insure.  If you make $200,000, you can only insure $110,000 and -- most importantly -- your retirement benefits are calculated on the $110,000 you insure, NOT the $200,000 you earn.  That's the fundamental nature of the program -- and FDR designed it that way, so people would think of SS retirement benefits as something they had "paid for" (much the way I believe I was entitled to $X dollars in insurance proceeds after Hurricane Katrina because I had insured my house up to $x dollars and paid premiums on that basis).  Calling the limit on the amount of wages insured a "tax loophole" shows a profound misunderstanding of what SS and -- as FDR so adroitly recognized -- exactly what makes it the hugely popular program that it is.  

    Second, raising the insurable amount back up to 90% of total wages -- or $180,000 -- makes sense, I think.  It also should be palatable because -- since SS is "you get what you pay for," -- it's not just raising taxes.  It's also raising SS retirement benefits for those high income earners, since retirement benefits are based on the amount of wages you insure.

    Third, raising the insurable amount is NOT the same thing as "lifting the cap."  "Lifting the cap" implies that you pay taxes on ALL wages.  That results in one of two things, neither of which is politically acceptable:  (1) you are paying HUGE retirement checks to millionaires, since the checks are based on the amount of wages they insured; or (2) if you remove the link between the amount of wages you insure and the amount of retirement benefits you get, you've indisputably "changed SS as we know it" into what FDR labeled "the dole" -- i.e., "welfare."  You have given the opponents of the system the opportunity to call what you've done "changing SS into welfare" and they will -- correctly -- cite FDR against you.  That will, as FDR was aware, quickly erode the widespread support for the system, because now SS would become "welfare for old people" rather than a "you deserve it because you paid for it" system.  

    So, you need to be precise about what you are advocating.  Bringing insurable wages back up to 90% of total wages is probably workable.  "Lifting the cap" is probably not.  

    •  On the order of a 16k monthly check (1+ / 0-)
      Recommended by:
      coffeetalk

      based on the AIME benefits formula. BOE on my part.

      And yes, you are right, Authors/Diaries like this dont seem to understand the implication of the changes they propose.

      FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

      by Roger Fox on Wed Jun 13, 2012 at 01:37:42 PM PDT

      [ Parent ]

      •  They understand perfectly. (1+ / 0-)
        Recommended by:
        Roger Fox

        They're being disingenuous.

        •  That may true (0+ / 0-)

          Considering if someone posts a diary and doesnt stick around ..........

          That indeed may be  a very accurate assessment.

          FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

          by Roger Fox on Wed Jun 13, 2012 at 02:57:22 PM PDT

          [ Parent ]

          •  No fair Roger (1+ / 0-)
            Recommended by:
            Roger Fox

            NCPSSM is an organization, the National Committee to Protect Social Security and Medicare, one of the oldest and biggest advocacy groups out there. They set up an eponymous user and a Group of their own and also are Admins (per MY suggestion) of the Social Security Defenders Group. Like most progressive advocacy groups they have limited staff resources and their social media people have more than one iron in the fire at any given time. Meaning they can't be expected to do 24/7 monitoring of every diary they cross post to dKos.

            Those who want to give them direct feedback can visit their website, post to their blog(s) or heck even join their organization.

            Personally I am not a big fan of cap increases, for reasons explained by Roger,but for better or worse it is the preferred policy proposal of the 200 organization-member Save Social Security Coalition (SSSC) which in turn is coordinated by Social Security Works (SSW-headed by Nancy Altman and Eric Kingson) and CAF (Campaign for Americas Future-headed by Roger Hickey with social media coordinator longtime dKos User DaveJ aka Dave Johnson). And the organization NCPSSM is a key founding member of the Coalition.

            So whatever your preferred policy position probably the best way to be heard by the 'good guys' is to visit the websites and or join up with one or more of NCPSSM, SSW, CAF and touch base with the coordinating SSS Coalition. One way to get started might be a message to DaveJ, who actually has this as a day job.

            •  I'll send a note out to DJ (0+ / 0-)

              FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

              by Roger Fox on Thu Jun 14, 2012 at 09:48:42 AM PDT

              [ Parent ]

              •  Dave runs a CAF list-serv (1+ / 0-)
                Recommended by:
                Roger Fox

                For Social Security bloggers. It is basically a links list of current news stories copied from one distributed by SSW.

                A great resource for serious SS commenter-bloggers and  I don't think it is particularly restricted. For example I used to cross post it every day to the SSD Group, something I don't have time for these days.

    •  But who wants #1? (1+ / 0-)
      Recommended by:
      Roger Fox

      Would people making over $100k a year seriously want a their SS tax/payout increased?  Almost anything is a better investment than SS, and we're presumably not talking about people who can't save for the future.

      I'm not sure where the lobby is for such a change.

    •  Except that Social Security is already considered (0+ / 0-)

      a welfare program by many and no longer enjoys bipartisan support anyway so what difference does it make?

      There is no saving throw against stupid.

      by Throw The Bums Out on Wed Jun 13, 2012 at 05:33:27 PM PDT

      [ Parent ]

  •  NCPSSM How can you advocate (1+ / 0-)
    Recommended by:
    VClib

    lifting the cap without explaining the implications?

    Seriously.......

    Cap removal creates a 15k-16k benefits check......because of the AIME formula....

    The Earned Income tax Credit historically was started to make up for the regressive nature of FICA, remove the cap and we lose the logic behind the EITC...... Invting the GOP to advocate removing the EITC......

    The Trustees low cost scenario says SS is good thru 2090.....realiant on job creation wage growth and other moderate assumptions.

    This diary was reluctantly republished to SS defenders, we just agree with removal of the cap.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Wed Jun 13, 2012 at 01:29:49 PM PDT

  •  NCPSSM - of course, this makes abundant good (0+ / 0-)

    sense, which means politicians will probably never approve of it.

    "George Washington: "The power under the Constitution will always be in the people.... and whenever it is executed contrary to their interest, or not agreeable to their wishes, their servants can, and undoubtedly will, be recalled." 1787

    by moose67 on Wed Jun 13, 2012 at 01:42:52 PM PDT

  •  I've been saying this for years (0+ / 0-)

    And as a recent retiree I couldn't agree with you more.  I'm a baby boomer who is now collecting Social Security and feel that the Government (both Democrats and Republicons) knew that many of us would start retiring last year and this year yet they sat on their hands, didn't raise the cap and now are trying to scare us with Social Security will go bankrupt.  They need to raise the cap IMMEDIATELY.  Why should there be limits anyway?  No cap, you pay on your full yearly salary even if its millions.  This would save and protect Social Security for future generations.

    Never be afraid to voice your opinion and fight for it . Corporations aren't people, they're Republicans (Rev Al Sharpton 10/7/2011)

    by Rosalie907 on Wed Jun 13, 2012 at 03:31:19 PM PDT

  •  how about just paying for it ourselves? (0+ / 0-)
    •  paying for it ourselves (1+ / 0-)
      Recommended by:
      Bruce Webb

      "Incredibly most people still don't realize that workers..."

      can pay for their own Social Security forever, as they always have.  By raising their own payroll tax an average of one half of one tenth of one percent per year... about forty cents per week per year while wages are going up eight dollars perweek per year... they can fund Social Security as far as the eye can see.

      And they get the money back.

      Liberals are going to lose the SS fight by calling for "scrap the cap"  or other ways to turn SS into welfare as we knew it.

      The change in the cap from 90% to 83% of wages is essentially meaningless from the point of view that SS is insurance.  The fact that rich people got richer does not change what makes a reasonable premium for the insurance that SS provides.

      Is it worth it to risk losing SS, by begging the rich to pay for your retirement, to save forty cents per week?

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