The Only Social Security Reform Worth Considering: Raising The Ceiling On Income Subject To It Robert Reich | Jul. 23, 2011, 6:37 AM | 1,364 | 31 A A A
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Robert Reich
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Robert Reich is an economist, a professor, and former Clinton labor secretary Recent Posts
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Why Medicare Is the Solution -- Not the Problem The Only Social Security Reform Worth Considering: Raising the Ceiling on Income Subject to It The Shameful Murder of Dodd Frank
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The very idea that Social Security might be on the chopping block in order to pay the ransom Republicans are demanding reveals both the cravenness of their demands and the callowness of the opposition to those demands.
In a former life I was a trustee of the Social Security trust fund. So let me set the record straight.
Social Security isnt responsible for the federal deficit. Just the opposite. Until last year Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government.
Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.
But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspans Social Security commission was supposed to have fixed the system for good by gradually increasing payroll taxes and raising the retirement age. (Early boomers like me can start collecting full benefits at age 66; late boomers born after 1960 will have to wait until theyre 67.)
Greenspans commission must have failed to predict something. What?
Inequality.
Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling. (That ceiling is now $106,800.) The ceiling rises every year according to a formula roughly matching inflation.
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 Commissions 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 Securitys long-term (beyond 26 years from now) problem would be solved.
So theres no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.
[This post is drawn from one I posted in February before Social Security was as on the chopping block]
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