Predictably, conservatives won't like this idea, but I believe it would be best for the nation and its citizens to eliminate the cap on Social Security taxes. The argument of the very wealthy is that they don't need Social Security benefits, so why should they be expected to support those who do? But this ignores the fact that the wealthy have spent their working lives profiting from the labor of the poor and middle class. Please follow the argument beneath the orange pillow.
I don't contend that every wealthy person is a ruthless capitalist. A fair number of them—I would hope a majority of them—are decent caring people in their everyday lives. But our culture and our economic system have inculcated in them the economic law of the jungle, the Randian notion that they are entitled to use every means available to increase their wealth at the expense of their fellow citizens. Indeed, they think it would be foolish to do otherwise. That's the system as they see it and practice it.
As an example, consider Sam Walton's heirs. They own more than $100 Billion in Walmart stock (about 52% of the company) between them, which they "earned" in the sperm lottery. Their annual personal income is in the billions. Yet, they ruthlessly exploit the most humble part-time worker to extract the last possible dime from him or her. They don't see anything wrong with that; it's the way the game is played.
I don't think this is good for the country, and neither (I hope) do you. We all benefit in certain ways from the capitalist economy, and I don't advocate a different economic system. But capitalism must not be allowed to become runaway plutocracy. Unrestrained capitalism would logically end up with a few people owning most of the wealth in the country. We are approaching that point; some would say we have reached it. This is where government comes in. One of the most important functions of a democratic government is to protect the people who are at a disadvantage. In the case of Social Security, it is why we provide—and MUST provide—a decent retirement for people who have worked all their lives.
But why should we ask the wealthy to pay more for Social Security than they will collect from it? The answer is simple. The wealthy have grown rich from the labor of the less wealthy. This is not meant to demonize the wealthy; it is merely an accurate description of how the system works. Typically, the less wealthy have worked their entire lives laboring for the benefit of the wealthy. The very wealthy would be living in rude huts, gathering berries and hunting rabbits for a living, were it not for the work of the less wealthy. By and large, the wealthy have not personally laid a single brick, nor written a single line of computer code, nor taught long division to a single child, nor helped to assemble a single automobile, nor grown so much as a single stalk of wheat. In helping to fund the retirement of working people, the wealthy would be paying back those working people who did all the heavy lifting. There has been a great deal of heavy lifting that the rich have not participated in.
I had an email exchange in the late 90's with a prominent right winger in which I proposed this idea. His answer was that those workers were paid for their labor, and that the rich owed them nothing more. I was stunned. The retired were presumably his relatives, friends, and neighbors, or at least his fellow citizens, but he looked upon them as so many labor units. Bought and paid for. Shades of The Chronicles of Mitt!
If you believe, as I do, that unrestrained wealth concentration is bad for the country, then extending or eliminating the SS cap would be a very modest step in the right direction. This is the question that we should ask: Are the very wealthy becoming impoverished, or are they being even more wealthy? If the wealthy are becoming poorer, then we should lower their taxes and raise taxes on the middle class. But if the wealthy are becoming even more wealthy, then they should bear a larger part of that national burden.
Of course, we all know the answer to that question. The rich become even richer every year, and the poor become poorer. I will spare the reader the usual graphs and charts that attest to this national disgrace. It is a fact, and it is why the rich should shoulder a greater part of the Social Security burden. The wealthy are the chief beneficiaries of the lifetime labors of the working class. Their moral obligation could not be more clear.
Don't be swayed by clever sound bites like "other people's money" or "wealth redistribution". This is not a matter of some abstract notion of fairness or morality; it is a question of what tax policies will create the greatest well-being for the greatest number of Americans.
Removing the Social Security tax cap would make the Social Security tax a flat tax instead of a cruelly regressive one. If all income from all sources were subject to this tax, the rate would probably be in the neighborhood of 7.5%, rather than the 15.3% that we currently soak the poor and middle class. (Obviously, I am including the Medicare tax.) I am not advocating soaking the rich; I am merely advocating that they should pay an equal share of the national burden.
The 7.5% figure—admittedly a ballpark estimate—is arrived at by dividing the total payroll tax revenue by the total personal income in the US (865 B / 12.3 T using 2010 numbers). This yields 7.03%. Let's round this up to 7.5% to be on the side of caution.
In a single stroke, this would accomplish four important national aims:
1 - By greatly expanding the tax base, Social Security and Medicare would be put on a firm financial footing permanently.
2 - It would take Social Security and Medicare off the table as far as the national debate is concerned.
3 - This tax would make a tiny dent in the ability of the rich to get richer. It might not be enough, but it would be a start, a demonstration program if you will.
4 - This tax would transfer wealth from the top end to the bottom end of the income spectrum. The bottom end would tend to spend more of that increment than would the top, leading to greater economic activity and greater GDP via the multiplier effect.
Households making $110,00 or less would get a payroll tax reduction of 7.8%. (All figures refer to % of gross income.) Between $110,000 and $296,500, the reduction would be less, and above $296,500, there would be a tax increase. Those whose income is all in wages would see a tax increase of up to 4.6%. Those with income consisting solely of dividends, capital gains and carried interest would see an increase of 7.5%. While these figures represent a substantial increase in the contribution of the wealthy, raising taxes on the top 1% by mere single digits is hardly radical or punitive—the increase is near the national average for sales tax. In terms of their ability to buy creature comforts, its effects would be microscopic. The main effect on the wealthy would be to slightly reduce their ability to wield social and political power.
Meanwhile, a family of four with an income of $50,000 would see a tax reduction of $3900. The stimulus effect on the economy would be considerable. One could reasonably expect that the economic benefits of this tax cut would lead to greater economic activity and consequent job growth. Lower unemployment would increase the bargaining power of the working class. This is the real reason that the wealthy fight tooth and nail to keep their own tax rates low. It's not about access to filet mignon, it's about access to raw personal power.
I am aware from comments to my previous diaries that many Kossacks oppose ideas like this on various grounds. One of the arguments is that by being funded primarily by the poor and middle class, Social Security is protected from assault by the wealthy. Well, good luck with that. This very day, Social Security benefits are under attack.
Another point is that Social Security was conceived as an insurance plan, not a welfare plan. Yes, it has insurance aspects, such as disability and survivor benefits, but the principal benefit—the retirement benefit—is neither insurance (against what?) nor charity. It should be seen as an obligation that society owes to its citizens, just like police and fire protection. FDR was a great president, but we need not be rigidly bound by the details of his thinking. We have learned a lot in the last 77 years.
I am not so naive that I think we could get something like this through Congress today. But I think we should start this conversation so that it might someday be possible. If we don't tell the country where we want to be, we'll never get there. For how many years did we try to enact health care reform before succeeding by a single vote in the Senate? Even so, we should continue to work toward single payer.
The touchstone should be that government should strive to improve the NET well-being of all citizens. The very wealthy are more than capable of looking after their own interests. We DO, however need to enact legislation to favor the interests of those who are not among the wealthy and the powerful. This is the proper function of good government.