(This is a repost of a diary I wrote in April 2012, and then reposted in December 2012. It's sadly still relevant (again), even though Social Security shouldn't be a part of the fiscal/budget negotiations at all, since the program has nothing to do with annual budget deficits nor the national debt...IT'S A TIMELESS TOPIC, APPARENTLY)
We can fund Social Security, truly strengthen it; the solution is well-known and fleshed out.
We don't need to cut benefits for anyone.
We don't need to cap benefits for anyone.
From "Social Security: Raising or Eliminating the Taxable Earnings Base", a report issued by the Congressional Research Service:
Option 2: Cover All Earnings and Pay Higher BenefitsThis will result in no additional taxes for the majority of Americans, a small tax increase for many, and a few (~5%) with a substantially higher tax burden (with correspondingly higher Social Security benefits paid out to them, I'll add):
If the earnings base was completely eliminated for both employers and employees so that all earnings were taxed, 95% of the projected financial shortfall in the Social Security program would be eliminated. To achieve solvency for the full 75-year projection period under this option, the total payroll tax rate would have to be raised by an additional 0.1 percentage points (from 12.4% to 12.5%) or other policy changes would have to be made to cover the shortfall.
Under this scenario high earners would pay higher taxes but also receive higher benefits. However, the net benefit to the Trust Funds is positive as $5 in additional revenue would provide only $1 in additional benefits (on average over their 75-year valuation period). Annual Social Security benefit payments would be much higher than today’s maximum of $25,440. A worker who paid taxes on earnings of $400,000 each year would get a benefit of approximately $6,000 a month or $72,000 a year—a replacement rate of 18%—while someone with lifetime earnings of $1 million a year would get a monthly Social Security benefit of approximately $13,500 a month or $162,000 a year—a replacement rate of 16.2%.
If the base were removed, the majority of beneficiaries would pay no additional taxes compared with current law, as fewer than 8% of workers are projected to earn above the taxable wage base each year. Examining the impact on individuals receiving Social Security benefits in 2035, roughly one in five beneficiaries (21%) would have paid any additional taxes over their lifetimes compared with current law (Figure 3). For most of these affected individuals, the increase would be moderate. Roughly 16% of all beneficiaries would see their lifetime tax payments increase by less than 10%. However, 3% of all beneficiaries would have their tax payments increase by 10% to 19%, and 2% would have tax increases of 20% or more.Of course this is precisely the reason this proposal is not "Very Serious" -- it requires a sizable tax increase on the rich and inexplicably "voodoo economics" is still the default economic theory of journalists and politicians in this country.
Anyway, thanks for reading. Hope you enjoyed it, and maybe even agreed that this is a solution with some potential for funding Social Security. Now all you need to do is get hired by the New York Times or elected to Congress...