A week ago, an ABC/Washington Post poll asked Americans about Social Security reform:
On Social Security, as noted, a majority of Americans, 53 percent, support collecting taxes on all the money a worker earns, not just the first $107,000. That’s similar to what it was in 2005.
Two others come fairly close to half: Forty-six percent support trimming early-retirement benefits, up 10 points from six years ago; and 45 percent support cutting the rate of growth in benefits, up 8 points since 2005. Among other items, 42 percent favor raising the retirement age for full benefits from 67 to 68 – still short of a majority, but up 9 points from 2005. Just 35 percent favor raising the Social Security tax rate and 32 percent back reducing guaranteed benefits for future retirees; the first is up by a scant 4 points from 2006, but the latter – while still last on the list – is up 12 points.
That led Ezra Klein to note that this poll gives us a roadmap for what to do to reform Social Security, especially since Republicans have requested that the program be on the table before they agree to raise the debt ceiling.
The only fix that garnered majority support was lifting the payroll-tax cap so that all income, rather than just the first $107,000, got taxed. That’s a reform, I’m confident to say, that the Senate’s liberals would have less trouble swallowing, and according to the Congressional Budget Office, it would wipe out virtually all of Social Security’s shortfall.
So if this is just about balancing Social Security’s books, it shouldn’t be too difficult. We can pass the reform and raise the debt ceiling with no problem. Huzzah! On the other hand, if we’re in one of those conversations where we’re pretending to talk about balancing the country’s books but we’re actually only talking about “cutting spending” and revenues are off the table, well, that’ll be harder.
Klein is right that this is the only fix that gets support from a majority of Americans right now. But that doesn’t mean it’s the right thing to do. In fact, it is likely to work against the stated objective of saving Social Security.
Here is how it looks on paper: Eliminating the cap on covered earnings would subject all wage income to the 12.4 percent OASDI payroll tax (half paid by employers and half by employees). Based on the Social Security Trustees’ Report, that revenue would be enough to close the gap between the revenues Social Security is projected to receive and the benefits it has to pay over the next 75 years, which would make the system “solvent.”
But it would be an illusion of solvency: More tax revenues today would just result in tax-revenue surpluses that would go into the trust fund, which would have to invest the money in Treasuries. IOUs would be issued to the Social Security system, giving the illusion that the system is solvent. Meanwhile, the cash would be spent by the federal government and would continue to put even a greater burden on future taxpayers to fund future benefits.
Andrew Biggs of the American Enterprise Institute makes an even more important point in his new paper, “The Case Against Raising the Social Security Tax Max”: The existence of a positive trust-fund balance seems to give an incentive to lawmakers to spend more money, borrow more from the public, and reduce taxes in non–Social Security areas.
The evidence suggests that Social Security surpluses, rather than building savings to help pay future Social Security benefits, instead tend to subsidize present consumption. Social Security surpluses allow current spending to be higher, or current taxes lower, than they otherwise would be. It would therefore be ironic, to say the least, if Congress approved a strategy to fix Social Security that relied on trust funds that both economic research and the Congressional Budget Office have concluded do not effectively prefund future benefits.
Biggs points to data and analysis from three studies by well-respected economists such as Kent Smetters of the Wharton School, Barry Bosworth and Gary Burtless of the Brookings Institution, John B. Shoven of Stanford, and Sita Nataraj of Occidental College. He also notes that the Congressional Budget Office has embraced this view as well.
In other words, it would be counterproductive to raise more revenue and pour it into the trust fund. Not to mention that raising taxes and increasing spending would have a counterproductive effect on the economy.
More productive solutions would include ensuring that the program truly benefits those who need it the most, and creating private accounts so people aren’t stuck in a system that produces low returns and confiscates their lifetime payments if they die before they can collect. Biggs’s suggestion is “to reduce Social Security benefits for middle and high earners while encouraging greater individual saving and longer work lives.”
One final point: I always find it strange that people who are against cutting benefits are in favor of keeping the system as it is or just finding temporary revenue fixes. If we do not reform Social Security, the program is scheduled to cut benefits across the board by over 20 percent, including for those who need it the most, as soon as the trust funds run out of IOUs. That date may seem far down the road, but it really isn’t, especially considering that each year the date is revised and gets closer to the present. It is incredibly inconsistent to claim to be in favor of the program, especially for poor people, and yet refuse to reform a system that will slash benefits for all, including the neediest.
Raising the tax limit on SS while it would raise revenue now, it also means that when the current workers retire, they will be entitled to a bigger SS payout.
It may push the day of reckoning back by a few years, but it does not solve the problem.
Raising the SS limit will also guarentee that when the SS fund starts running out in the future, the cry to limit SS payouts will be tremendous. Can you imagine the high dudgeon of liberals going on and on about how Bill Gates is already rich, yet he gets $100,000 a month from SS, while poor grandma has to eat cat food.
Reply to this commentLinkReport AbuseIf you thought the economic consequences of raising the taxes on the "rich" from 36% to 39.6% was bad. Try imagine how much damage raising it from 36% to 48.4% will do.
Reply to this commentLinkReport AbuseUnder today's rules, the more money you put into Social Security, the more money you get back later.
When you say "tax the income above 107K," are you saying that those who pay this money get nothing in return for it later on? I think you are, but this needs to be made clear.
We'd be essentially confiscating money from the higher-earners to defer the demographic disaster that is intrinsic to Social Security, while ignoring the fact that Congress is raiding the fund itself.
Reply to this commentLinkReport AbuseAs a conservative, if there has to be Social Security at all, it should be just that: Social *Security*, i.e. a program designed to aid the impoverished elderly in their retirement, with as many precautions as possible against distorting economic incentives for saving for retirement.
Instead of guaranteed benefits SS, what about government matching funds? If it works for employers to incent employees to invest in 401Ks, why couldn't it work for poorer Americans to save for their retirement?
Then leave the savings to the rest of us with the means to save for our retirements do so, on our own, with far more productive rates of return.
Reply to this commentLinkReport Abuse1. end the illusion of a "trust fund"--just have all FICA taxes go directly into the general fund. As a consequence, SS payments come directly from the US Treasury as with any other federal welfare program
2. as with any welfare program, means test SS benefits (a note in passing. Under the current "system", single mothers, young families, etc. have SS taxes taken out of their paychecks to pay SS benefits to those such as John McCain. This is immoral.)
Additional note: "raising the social security tax" to apply to all income, makes the "SS Tax" effectively part of the income tax structure. So if we are going to do that, let's end the pretense that SS is some separate insurance system, instead of the special interest special welfare program it was intended to be, and is.
Reply to this commentLinkReport AbuseIf we are going to turn SS into nothing more than yet another welfare program, better to get rid of it altogether. We have way to many seperate welfare programs already.
Reply to this commentLinkReport AbuseI see the point about single mothers paying for John McCain's benefits being immoral. But isn't that true as long as there are any redistribution programs? Would you feel better if the single mother was paying for farm supports or foreign aid or any of most of the things government does?
Reply to this commentLinkReport AbuseIf we're going to have a tax system them I'd like to see everyone pay something. The single mother less than McCain, but everyone contributing. Then we can discuss whether what we're all paying for makes sense. Is social security a good program? Are farm supports? Obamacare? Etc.
If a single mother paying SS taxes for John McCain is immoral, is it also immoral for her portion of the gasoline taxes to go towards building roads that John McCain is going to use?
Reply to this commentLinkReport AbuseCan someone explain to me why NRO writers continue to bother engaging Ezra Klein's juvenile arguments? Is he important just because the Washington Post has decided to give him space to scribble? Honestly, it elevates him well beyond what he deserves when NRO writers even bother to knock down his transparently foolish and poorly though-out arguments, and I wonder why they bother. Aren't there intelligent liberals out there to engage?
Reply to this commentLinkReport AbuseGerson
You are trying to avoid the point. SS taxes are dedicated. Current SS taxes go first to pay current SS benefits. The single mother's current SS taxes go to pay John McCain's current SS paycheck.
The SS benefits should restricted to those who actually need them to avoid appalling old age poverty, not for husbands of heiresses who have senatorial salaries, nor for those who use their SS paychecks to travel the world or to blow at racetracks, bingo parlors and Indian casinos.
What other stuff other taxes pay for, policies or programs, whether appropriate or not, are not relevant to the immorality of the SS program as currently constituted.
Reply to this commentLinkReport Abuse"One final point: I always find it strange that people who are against cutting benefits are in favor of keeping the system as it is or just finding temporary revenue fixes. If we do not reform Social Security, the program is scheduled to cut benefits across the board by over 20 percent, including for those who need it the most, as soon as the trust funds run out of IOUs."
We're forced to slash benefits to women and minorities (no white men will be harmed in the slashing of benefits according to the DNC, WP, and NYT) because those Republicans of the Party of 'No' refused to tax rich white men in the past to provide for them.
Come on, it'll be just as easy to demagogue real reform in 20 years as it is now.
"More tax revenues today would just result in tax-revenue surpluses that would go into the trust fund, which would have to invest the money in Treasuries."
That's easy enough to avoid: when the law is changed to raise the ceiling require SS surpluses be invested in Greek, Portuguese, Italian, Spanish, Irish, and Icelandic gov't bonds..you know, the stable ones.
Or GM and Chrysler bonds.
Or GE bonds...basically anything Congress can't touch.
Reply to this commentLinkReport AbuseLeveut is right. People in their 60s today probably still mostly think Social Security is akin to a 401(k) plan, but younger workers probably tend to know better.
It's a tax and a welfare program. Let's call it what it is. Honesty is the first element of real reform.
Reply to this commentLinkReport AbuseMarkW
If SS taxes were immediately mixed with general revenues in one big pot, and if SS benefits were paid out of that one big pot along with every other federal expenditure, you might have the beginning the possibility of a point.
But they aren't. So you don't.
Reply to this commentLinkReport AbuseLevuet:
1) SS taxes are mixed into one big pot already, have been since the very first day.
2) Allegedly, gasoline taxes are also kept in a seperate lockbox to be spent only on roads, which makes my analogy perfectly apt.
I'm surprised that someone who paints himself as knowing what he's talking about, didn't already know both of those things.
Reply to this commentLinkReport AbuseActually, SS revenue are not "mixed in" with general revenues. SS is its own system. Now surpluses ARE invested in fed gov't bonds (worthless IOUs to some people)...but that is a different issue. No more idiocy about "worthless IOUs" in the "lockbox". The bonds SS is issued are no more worthless than any other bond. How will the gov't pay them off? How does the gov't pay off maturing bonds now? It borrows from the public.
Right now, if the rich put more into SS, then they'll get more out when they retire. How does that help "solvency"? Give me a dollar today and I'll give you two in 10 years...that makes me solvent? It helps CASH FLOW, not solvency.
Further, what good does putting more into it do towards "solvency" anyway, if, as some people say, it's impossible for the SS fund to build up any assets. It just holds "worthless IOUs".
We were actually told in the 1980s to "build up assets"...so Reagan and Greenspan proposed raising rates, which they did. Cashflow was far in excess of SS payments. Now they tell us those "assets" don't really exist! Just "worthless IOUs"! The gov't bonds pension plans hold are IOUs too...but somehow they're not worthless.
Turning SS into a welfare fund would be an outrage. A completely regressive tax. So millionaires lose their SS amount they put in and some sap like me who thought his marginal rate was 28%...well it was actually 40% (with the company match)...as all that money was taken and I won't see a dime of it. Yeah, that's fair. And that's a "conservative" position? Marginal tax rates thus were really 40% up to 100K or so then dropped to 28% until the rates went up to 35%...in other words my marginal rate was higher than someone earning a billion dollars. Jerks.
The conservative position is you pay what you promised. Just like every other stakeholder. Adjusted for increasing lifespans, interest, etc. I put into SS not as a general tax but as a "forced pension plan". If Donald Trump buys a gov't bond should the gov't stiff him cause he doesn't really "need the money"? But it should stiff me?
The gov't promised to pay SS back and that is exactly what it must do. SS may eventually have to cut benefits across the board due to increasing lifespans (and fraud in the disability program) but that is a different issue. The fact that SS is PART of the gov't is IRRELEVENT. That's not my fault and I didn't give permission for my money to be stolen...I was told it was "invested".
Reply to this commentLinkReport AbuseRemoving the top limit without rasing the benefit changes the nature of social security from a forced retirement savings plan to a welfare program and an economic redistribution program in the clearest, most socialist meaning of the term.
One other point that always cracks me up is the way that the media and the liberal left love to point to polls that say the majority of the public would like to solve any fiscal difficulties by raising someone else's taxes. Like that is somehow amazing and difficult to predict.
Reply to this commentLinkReport AbuseSorry brianbb, your argument would only make sense if the "bonds" held by the SSA were real, marketable treasury securities that counted toward the national debt. They aren't and don't - which is why China and others are willing to lend money to us now, but won't when the big bills come due.
We won't be able to stiff them on the real T-bills, and they won't lend us more to cover SS debts, so the only things that can happen is taxes are raised to levels that destroy our children's standard of living are benefits will have to be reduced. End of story.
Reply to this commentLinkReport AbuseSocial Security hurts everyone inside and outside the program. Even under the current rules, we receive a negative return. Further, it increases unemployment, raises interest rates, it's a regressive tax, provides subsidies to the middle class and wealthy, discourages work by retirees and increases the deficit. Also, it converts our actual property (i.e., cash contributions) into an unenforceable right to collect benefits. There is literally nothing good about this program.
Why is no one arguing that we should end Social Security entirely?
Reply to this commentLinkReport Abusebrianbbb: It was Carter that raised SS taxes. The last two of the scheduled increases occurred after he was kicked out of office.
Reply to this commentLinkReport AbuseSkip the trust fund-make it pay as you go and
Reply to this commentLinkReport Abuseadjust taxes each year as necessary.
Taxes will rise over time or benefits cut.
Just stop the bad accounting