Yesterday, poopdogcomedy had a great post about Alaska Senator Mark Begich's bill to strengthen Social Security by eliminating the payroll cap on Social Security taxes so that high-income people pay the same rate as the rest of us. This is an excellent idea.
Social Security currently generates a surplus – it contributes nothing to the federal deficit. And the program would probably be fine over the long term if we could just get out of the recession we're in. So the best solution to preserve Social Security would be for the government to stimulate the economy which would create demand for goods and services which would prompt businesses to hire more people and those new employees would then pay more payroll taxes, increasing SS's surplus. But it would also be helpful to eliminate the payroll tax cap. This would raise enough additional revenue to increase Social Security benefits and this is what Begich's bill does.
As the Wonkblog says, Begich's bill would sort out Social Security’s finances while making it more generous:
Social Security is not in danger of becoming insolvent any time soon. According to the program’s actuaries, without any changes, Social Security will be able to pay out full benefits until 2033. And there’s reason to doubt that problems will arise even 21 years from now.The Alliance for Retired Americans (ARA) supports Senator Tom Harkin's Rebuild America Act which would, among many other good things, raise and then eventually eliminate the payroll tax cap as well as increase benefits for the poorest recipients.
... The Begich bill would lift the current payroll tax cap, which exempts wages in excess of a certain amount ($110,100 this year) from the tax. In turn, it would give high earners, who would pay more, additional benefits upon retirement, just as benefits increase as wages do for workers below the cap.
According to the Congressional Research Service, a change like that would almost entirely wipe out the program’s long-run actuarial imbalance....
[Instead of the chained Consumer Price Index (CPI),] Begich adopts “CPI-E,” or a measure that specifically captures inflation in goods that seniors buy.
Due to deteriorated health and other considerations, goods seniors buy tend to be more expensive than those younger people purchase. Begich’s CPI-E change would mean, effectively, a 4.5 percent benefit increase for the program’s beneficiaries, including not just seniors but their designated survivors and disabled Americans as well....
Robert Reich notes that raising the cap to $180,000 would ensure that the payroll tax once again applied to about 90% of total wage income (as it did in the 1980s and 90s before inequality meant that more of total wage income is going to the richest earners and only 84% to the rest of us).
Pointing out that pensions and 401(k) plans have been devastated in the last few decades, Steven Hill goes further and calls for doubling Social Security benefits (in The Atlantic and in a report for the New America Foundation):
Doubling Social Security's individual payout would cost about $650 billion annually for the approximately 53 million Americans who receive benefits. Here's how to pay for it.Some Good Background Reports
Step 1. Lift Social Security's payroll cap that favors the wealthy.
Making all income levels pay the same percentage -- which is how Medicare works -- is popular with Americans according to opinion polls, and would raise about $377 billion toward the $650 billion needed to double the Social Security payout. As a candidate in 2008, Barack Obama stated that he supported raising the cap on the Social Security tax to help fund the program.
Step 2. Cut out the business deduction for employees' retirement plans.
With all Americans receiving Social Security Plus, employer-based pensions would be redundant, so businesses no longer would need the substantial federal deductions they currently receive for providing employees' retirement plans. These deductions total a substantial $126 billion annually....
Step 3. Cut or reduce other deductions that disproportionately benefit top income earners....
There are many other options that would actually strengthen Social Security and help people instead of cutting benefits. Here are two Congressional reports that provide a lot of good background information:
Social Security Modernization: Options to Address Solvency and Benefit Adequacy, Special Committee on Aging, United States Senate, May 13, 2010.
One option explored in this report is to eliminate the cap and increase benefits to the rich, but not by the full amount. This is the third option under "Broaden the Revenue Base" on the table on pages 8-9.
Social Security: Raising or Eliminating the Taxable Earnings Base, by Janemarie Mulvey, Specialist in Aging and Income Security, Congressional Research Service, September 24, 2010.
...if the base was completely eliminated for both employers and employees so that all earnings were taxed, but those earnings did not count toward benefits, solvency would be restored to Social Security. ... Under this scenario, the payroll tax rate could be immediately lowered from 12.40% to 12.12% and the system would remain solvent for the next 75 years...OurFiscalSecurity offers a helpful fact sheet on Social Security and the National Committee to Preserve Social Security and Medicare provides this basic primer.