Easy and Wrong

by Ramesh Ponnuru

Andrew Biggs explains what’s wrong with Ezra Klein’s two proposals to make Social Security solvent.

The first proposal, borrowed from Gene Sperling, is “a 3 percent surcharge on all income over $200,000″ to solve half the problem and “bipartisan agreement on benefits cuts or tax changes” to address the rest. Biggs comments, “Wow, what a bargaining strategy: you give me half of what I want and then we can bargain over the rest. I’m shocked the administration doesn’t have a bipartisan plan in hand already.”

The other proposal is (primarily) to eliminate the payroll-tax cap. Social Security taxes apply only to $107,000 of income; people who make more pay no Social Security taxes (and accrue no Social Security benefits) on the remainder. Biggs makes two counterarguments. The first is that we now have extensive experience in which a surplus of Social Security tax revenue has been spent on the rest of the budget rather than saved for the program’s future benefits, and there is no reason to expect this tax increase to work differently. The second is that eliminating the cap would mean that the top marginal tax rate would be, depending on the state, somewhere between 57 and 68 percent — and that’s before Medicare and Medicaid get their own easy, simple, tax-raising solutions.

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