Raise the income cap subject to SS tax? Here's the downside.

[lumberjack_jeff]

The biggest risk to workers who one day will receive social security is political. All of the Republicans and many Democrats want to rearrange the system so that the system never has to cash in the bonds in which the SS trust fund is invested. They want to selectively default on the government's debt to its citizens.

I consider that a fundamental breach of the social contract. If they do that, they no longer operate with the consent of the governed (at least not THIS one).

Is raising the ceiling simply another means of doing the same thing? Raise SS taxes high enough that the trust fund keeps building without any possibility of outflow?

High income SS taxpayers are still workers. Obama made the case today that Warren Buffett doesn't have his $50b income taxed for SS. It is a strawman. Capital gains are never going to be subject to SS tax, no one will propose it and few will support it - that's a fundamental change, not a tweak.

I'm not overly sympathetic to the plight of really high income workers, but I'm less sympathetic to those who profit from unearned income, those who benefit by shifting their taxes onto workers.

[Raven]

1. Doesn't unearned income come from income that was once earned?

[lumberjack_jeff]

2. To a degree.

A-Rod's 500th home run baseball which recently sold at auction for $103,759 was originally sold for $2.79 of which maybe $1 was income to a Costa Rican worker who was initially taxed.

The rest is the profits earned by the entrepreneur who risked so much on his innovative idea to bring that baseball to market.

Thanks for striking a blow against oppressive double taxation.

http://www.usatoday.com/sports/baseball/al/yankees/2010-02-05-rodriguez-homer-auction_N.htm

[Jim__]

3. I don't follow your argument.

Raising the ceiling on income that is taxed for SS will significantly increase the amount of money that SS collects every year. I have read estimates in the past that this is sufficient to eliminate any SS shortfall. There's no need to include capital gains under the SS tax.

This could probably be done in such a way (e.g. setting the ceiling and the SS tax rate) that we still collect from the SS Trust Fund. If they formally reneg on the trust fund, but they continue SS payments on a strictly transfer basis, I don't really see the problem. What I am I missing in your argument?

[lumberjack_jeff]

6. I consented in 1983 to raise my SS taxes to create a surplus.

That surplus was justified as the only way to save my hypothetical kids from ruinous expenses relating to my generation's retirement. I don't think it's unreasonable to expect government to hold up their end.

Think of it this way; if raising taxes on high income workers is adequate to save social security by preventing the need to ever need to cash in the trust fund, then why wouldn't raising taxes on the rich (which include those who live on unearned income) be a satisfactory way to repay those bonds?

The US government is essentially corporate infrastructure built to shift taxes onto workers by any means necessary.

[Kalun D]

11. His Point

Social Security is self funded, it's not a tax, it's an insurance program.

But the government has "borrowed" (stolen) from it and it's on the way to becoming insolvent. So now to fix it they want to raise the rates on people that aren't really involved with the insurance part of it. They weren't there when the initial payments went in, they are just being used to cover up the fact the funds were stolen.

[lumberjack_jeff]

14. It wasn't stolen until and unless politicians set up the conditions where they don't have to repay.

raising SS taxes to create an ever-growing SSTF does exactly that.

[Warren Stupidity]

16. exactly right

raise the freaking income tax rates on millionaires and billionaires, and heck on everyone making over 250,000 and then pay the t-bills held in account for SS just as we do all other t-bills. If 25 years from now there really isn't enough to meet obligations: then raise the cap or raise the rates or both.

[Hannah Bell]

4. Raise SS taxes high enough that the trust fund keeps building without any possibility of outflow?

yes. they want the revenue stream.

kr

[dawg]

5. If that were enough to make an ever-increasing trust fund ...

the simple solution would be to cut the FICA rate until it balanced. We, as citizens, would be idiots not to demand that.

[lumberjack_jeff]

7. "We, as citizens, would be idiots not to demand that."

Why yes, we would be.

Then again, we are.

[Vincardog]

9. No we need to increase the COLA and reduce the retirement age until it is balanced..

[lumberjack_jeff]

15. Meritorious idea.

I hadn't considered that.

[Warren Stupidity]

17. we would need a political party that advocated for working families

too bad we don't have one.

[exboyfil]

8. As far as I am concerned

the most compelling argument for eliminating the cap is to allow high income earners the opportunity to subsidize S.S. just like those who make between $50-$105K currently do. This comes about because of the deeply progressive benefits formula (90%,32%,15%).

I do not think that accumulating additional money into a "Trust Fund" makes any sense though. The rates should never have been increased to the level they were in 1983 without an ironclad agreement to limit government debt. If you remove the cap you should turn S.S. into a pay as you go system right now and reduce the withholding rates for everyone. The "Trust Fund" should be strategically tapped when times are good (general revenues up) to allow the cash flow into the S.S. to run in the red. The important number to know is what will the withholding rate need to be in 20 and 40 years to maintain the program with its current benefits structure as a pay as you go. When the Trust Fund is reduced to a working account level, then the system should stay as a pay as you go with increases in withholding rates (but such withholding rates should be capped to current levels).

[sinkingfeeling]

10. No, raising the cap would only generate about $1.3 trillion over 10 years. Not enough to keep

building the trust fund, but enough to cover the projected short fall in payouts.

http://www.dollarsandsense.org/archives/2008/0308miller.html

Lifting the cap on Social Security taxes would raise a significant amount of revenue: $1.3 trillion dollars over ten years according to the libertarian Cato Institute, and $124 billon a year according to the left-of-center Citizens for Tax Justice. Long term, lifting the payroll tax cap would just about cover the shortfall Social Security will face if economic growth slows to a snail's pace in the decades ahead, as forecast by the Social Security Administration (SSA).

[lumberjack_jeff]

13. The $2.3t trust fund is projected (absent any changes) to be exhausted in 2029.

That's 18 years from now. If lifting the cap is expected to bring in $124 billion each year according to CTJ, then it does exactly what I suggested. It defers indefinitely repayment of ANY of the SSTF.

[Warpy]

12. The ceiling is too low. Raising it will secure the system.

That is how the system was designed to work.

However, the mechanism to go after obscene wealth remains the progressive income tax, something that should be done for capital gains as well as income and inheritance.

It's also time to admit the obvious: those trillions of Boomer contributions have been looted and those t-bills are simply not redeemable. Foreign bond holders will be paid. Corporate bond holders will be paid. Boomers simply got robbed.

[customerserviceguy]

18. Another downside

is that when you raise the wage base, you raise the amount that the very highest earners can collect for a maximum benefit.

Here's an alternative to that: Raise the wage base by a bit, maybe $30-50 thousand dollars, but make the sky the limit on the employer's share. Some megabank wants to pay it's CEO $10 million to run the thing into the ground, fine, but they can pay employer FICA on the whole ten million.

Also, the "Trust Fund" needs to have freely tradeable Treasury securities issued to it if it ever runs a surplus again. No more of those non-negotiable IOU's.