Time to lift the income cap?
By Gerald Scorse, Guest Columnist
Their 2022 COLA (cost-of-living adjustment) rose by 5.9%, the biggest jump in nearly 40 years. The 2023 increase, just announced, came in at an even-higher 8.7%. That’s the best of times. The worst of times, getting ever closer, is the date when the Social Security trust fund runs out of money—and those higher benefits this year and next will likely wipe out the fund earlier than the current estimate of 2034.
Adding to the problem, the nation’s demographics have created their own double-edged sword. For years, a combination of higher life expectancies and lower birth rates has been lowering the ratio of workers who pay in to beneficiaries who take out.
Putting everything together, Congress will be forced to act to keep benefits from shrinking to only 78% of the currently scheduled amounts. There’s little doubt that lawmakers won’t let that happen, but plenty of doubt over the direction their fixes will take.
Even though Social Security is hugely popular, only the most optimistic expect a bipartisan solution. Everything will likely hinge on which party is in charge, and the ideas backed by the two parties differ sharply. Democrats want more generous benefits; the GOP, under the guise of saving Social Security, would effectively cut them.
Let’s review the major ideas. Then let’s consider two further reforms—both aimed at high-income Americans—to help prevent any shortfall and put the system on a sound fiscal basis.
Two pieces of legislation have already been introduced that rival each other at doing right by seniors. The Social Security Expansion Act, co-created by Senators Elizabeth Warren (D-MA) and Bernie Sanders (I-VT), would raise benefits by $2,400 per year. A proposal from Democrats in the House, Social Security 2100: A Sacred Trust, would raise all benefits by 2%—an average monthly increase of $159. Additional provisions in both bills, including a more generous way to calculate COLAs, would put even more money in the pockets of retirees.
The bills differ in how they’re funded, how much revenue they raise, and what it all means for the program’s future. The Warren-Sanders bill is both more progressive and more effective: it would fund Social Security through 2096, and do it by raising more revenue from America’s well-off.
There are currently no payroll taxes on incomes above $147,000. The House proposal would be funded by re-instituting those taxes on incomes above $400,000. The Warren/Sanders bill would go further, lowering the threshold to $250,000. It also calls for a new tax on the investment and business income of the top 7 percent.
The GOP strongly opposes the Democratic proposals but offers little in the way of alternatives. Most House Republicans have endorsed a new benefit-cutting idea, raising the retirement age to 70 for those born in 1975 or later—in other words, for everyone 47 or younger.
An old favorite, back for another try, is to privatize Social Security. Senator Mitt Romney (R-UT) wants to hand the whole issue over to a commission. That suggestion was quickly derided by one commentator as “getting big-money Republicans and big-money Democrats to secretly make decisions that go against the will of the people.”
So much for hopes of bipartisanship; now for the two additional reforms.
“Today, absurdly and unfairly, there is a cap on income subject to Social Security taxes.” Those words came from Senator Sanders when he introduced the bill removing the cap on incomes over $250,000.
It’s just as absurd and unfair to exempt income between $147,000 and $250,000. The payroll tax should apply to all work income, period. That makes the most sense, raises the most revenue, and helps Social Security the most.
Lastly, the starting age for required minimum distributions from retirement accounts has already been pushed back once, and House Democrats have voted unanimously to push it back again. It’s a huge giveaway to those at the higher end and a takeaway from all those below. The age should be reset at the original 70½ (or better yet, even lower). All the resulting extra revenues should be dedicated to the Social Security Trust Fund.
Summing
up, there’s no lack of ways to make Social Security more secure. It’s up to
Congress to find the will.
Gerald E. Scorse helped pass the bill requiring basis reporting for capital gains. He writes on taxes. His articles have appeared often in Progressive Charlestown.
© 2022 Gerald E. Scorse