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Winegar: Keep Social Security Solvent by Lifting Maximum Earnings Tax Cap

The latest estimate from Social Security trustees says our public old-age subsidy will spend its trust fund down to zero by 2035. That won’t shut down our retirement checks, just shrink them 23%. Plus, 2035 is a year later than the trustees predicted last year.

My Vermillion friend Mark Winegar says we shouldn’t worry, because we could solve the looming Social Security shortfall simply by knocking out the regressive maximum earnings cap and charge every worker, including millionaires, the same Social Security payroll tax:

The New American’s April 23 headline cried, “Social Security Taxes Won’t Meet Payouts Starting Next Year”!

Calvin Coolidge raising hat
Raise your cap, millionaires!

So-called conservatives have been predicting the demise of Social Security Insurance (SSI) for at least fifty years. Despite their cries, the system is still solvent and it can remain so by simply raising the cap on the payroll tax.

Roughly 94% of workers contribute 12.4% of their earnings to fund SSI but the wealthiest 6% pay less because the maximum earnings subject to payroll tax in 2019 is $132,900 resulting in lost revenues of roughly $1.4 trillion per year. This means the poorest of millionaires, those earning only $1,000,000 this year, made their last contribution on February 18, just 49 days into the year. (Center for American Progress)

Once again, those who can best afford to support government services pay the least while the rest pick up the tab.

Clearly the cure for SSI, if one is needed, is to raise the cap. So let’s stop crying wolf on SSI and do it. After all, $1.4 trillion can do a lot of good within a year [Mark Winegar, received by Dakota Free Press 2019.04.24].

In 2016, the Center on Budget and Policy Priorities said changing the maximum earnings cap could fill a quarter to nearly nine tenths of Social Security’s funding shortfall. Inviting and welcoming more immigrants to America would help, too… although the Social Security trustees’ high-end annual immigration assumption (1.601 million instead of the medium 1.265 million) only pushes the insolvency date back one year).

19 Comments

  1. o 2019-04-24

    Aside from the cap being embarrassingly low (and the most clear upside-down case of taxing most most from those least able to pay), this is a payroll tax — meaning many avoid the tax all together by alternative “salary” structures or “wealth acquisition.”

  2. Donald Pay 2019-04-24

    o is correct. The cap should be lifted, and there should be an additional way to collect on salary/benefit structures above a certain level. Lifting the cap is so easy, it could be done right now and it would end the fake conservative panic and their calls for cutting benefits and raising the retirement age.

  3. Michael L. Wyland 2019-04-24

    Lifting the cap on Social Security payments would be another step in acknowledging that it is a transfer payment and not “insurance” in any conventional private sector sense.

    For decades, Democrats especially held fast to the concept of Social Security (SS) as “insurance” and not welfare, in part pointing to SS taxes as “premiums” and touting that benefits (not tied to tax amounts paid) are the return of payments made.

  4. Kathy Bergquist 2019-04-24

    Wyland, the title could be changed to Social Security Investment. Keep the abbreviation. No worries, mate.

  5. Donald Pay 2019-04-24

    Really? Lifting the cap doesn’t change the program at all, except to stabilize it. SSI would remain transgenerational insurance in the way that it has been since early on in the administration of the program. The “welfare” idea is one pushed by ideologues to try to stigmatize it. The cap has been changed from time to time, and each time this canard is thrown out. When the program started, there wasn’t such a wide income and wealth gap. Lifting the cap is a way to readjust for the changing structure of the economy.

  6. o 2019-04-24

    Donald’s line, ” . . . readjust for the changing structure of the economy” rings true. How much economic policy, especially taxation policy, is rooted in an economic paradigm we have not had since the 1950’s? Maybe more like the 1910’s?

  7. bearcreekbat 2019-04-24

    A small technical point – using the abbreviation “SSI” for social security benefits can only lead to confusion.

    For over 40 years the abbreviation “SSI” has stood for Supplemental Security Income. This is a means and resource tested program administered by the Social Security Administration designed to assist indigent elderly and disabled people who have not paid in sufficient social security taxes to be covered by either social security or social security disability “insurance.” SSI typically covers children, adults with a disability that has prevented work, and people who become disabled that have not worked outside the home, such as homemakers. SSI benefits are available only so long as the recipient is disabled or elderly and under income and resource limits. This is the program that provides the indigent elderly with the income that pays for minimal nursing home care.

    https://en.wikipedia.org/wiki/Supplemental_Security_Income

    And, in light of the differences between social security and SSI, the label “insurance” for social security benefits is a more accurate designation than “transfer payment” since only those who have paid in sufficient premiums through taxes will be eligible for benefits. Supplemental security income is closer to a “transfer payment.”

    The more precise and normally used abbrevations for payments administered by the Social Securty Administration are: SS benefits = social security payments; SSDI = social security disability benefits; and SSI = supplemental security income. And another point – people who think it is easy for some lazy person to fake a disability and qualify for either SSDI or SSI are flat out wrong. The statutory criteria is quite strict and as a matter of fact folks who fall in the grey areas are normally denied benefits by the Adminstration.

  8. Donald Pay 2019-04-24

    Bear is right about. SSI. I was so used to SSI and SSDI in my work that I slipped into the jargon incorrectly.

  9. leslie 2019-04-25

    I like the idea, what impact would lifting the cap to all income do to the SS fund? The largely untaxed 1% would wet their pants wouldn’t they? Does this just apply to non-corporate persons? Arguments that such “persons” need to contribute based on income, like the rest of us. They in effect get old and “retire” in luxury, like the rest of us, right?:)

  10. Anne Beal 2019-04-25

    In 2008 I was asking people whom they were supporting for POTUS, and my brother was the only Obama supporter who could even answer the question (others couldn’t answer at all, and after an embarrassing silence, called me racist for asking the question.)
    Anyway, my brother said it was because Obama wanted to lift the cap on Social Security wages.
    But when I tried to verify that, I couldn’t find anything to confirm that. And if he ever said it, he never did it.

  11. John Kennedy Claussen, Sr., 2019-04-26

    Fight for a living wage. Employ people. All these jobs that go unfilled are lost opportunities to fill the Social Security trust fund. Not to mention how legal immigration – and a positive attitude towards it -can do much to address this issue.

    The late Senator, Daniel Patrick Moynihan – known as the great protector of Social Security in his day – cautioned against the idea of raising the maximum caps, because he was afraid that it would overtime turn Social Security into a mere welfare program, which would then overtime lessen its popularity and support.

    But whether Moynihan was right or not, the real answer is fighting for living wages as it is with most issues, which press us today. And until we address wages, the deterioration of so many of our institutions and social programs will continue to erode, thus causing us to rely increasingly upon potential compromising creativity to keep things afloat, when we really need to build a stronger boat through better wages.

    Plus, this recent disclosure that Social Security will become insolvent in 2035 is not new news. I had read over ten years ago that the insolvency date was 2037, then read that unemployment due to the Great Recession would bump that year up a bit, which apparently it has. And my guess is, that workers today making less in relative terms cannot adequately keep afloat the trust fund for current retirees who made much more in their relative day, too, which then taxes the system further.

    But let us not get hysterical about this or look for one time monies, rather we need to understand, that if wages do not go up, then future benefits will be less even with an extended solvency, and such a reality will potentially make Social Security less popular – or respected – in the future as it becomes less of ones retirement income; and that reality could be the true Achilles heel to the long term support and solvency of the Social Security trust fund, if we do not start to work to increase wages for all workers in America….It all comes down to wages and having more people work now.

  12. Richard Schriever 2019-04-26

    Social Security contributions are not limited strictly to those who draw a salary (payroll taxes). They are also drawn from the self-employed and otherwise (1099 for ex:) compensated. For the self-employed and otherwise compensated, the tax is due at the end of the year – along with the regularly filed 1040 or 1040NR via Schedule SE.

  13. leslie 2019-04-26

    Isn’t the crux income inequality and concentration of nearly all wealth at the top? Do you ever read TOWN AND COUNTRY? Life at the top is all about shameless luxury yet there is so much need in the world. People generally cannot afford to live in the USA.

  14. Cory Allen Heidelberger Post author | 2019-04-27

    I guess if Republicans want to try to denigrate Social Security by denigrating it as a welfare program and hence denigrate elderly voters as welfare recipients, then hey, rock on.

    Whatever we call Social Security, the principle remains simple and fair: you take care of the older generation now, and we guarantee that the next generation will take care of you. That’s no different from my way of looking at ethics in the social contract: I can’t pay back the Founding Fathers for writing such a durable Constitution, and I can’t pay back all the inventors and authors and artists before me for coming up with telephones and eyeglasses and great books and rock music and everything else that makes my modern life what it is, but I can and should pay my debt to them by working to ensure the blessings of liberty and Roxy Music to my posterity.

  15. Michael L. Wyland 2019-04-28

    Cory:

    The realization that Social Security is a transfer payment was admitted, according to National Public Radio, by Social Security’s federal administrators as early as the 1950s, when they chuckled at the idea of it being called “insurance” when it really wasn’t.

    The realization that Social Security is a transfer payment is central to the understanding that current beneficiaries are collecting funds that are, in large part, collected from Americans still working. The looming insolvency is, in significant part, tied to the growth in beneficiaries (mainly Baby Boomers) while younger workers decline in number.

    Another factor is increasing longevity. Social Security was a great idea when benefits started at 65 and average lifespan was 68. Now, benefits can start as soon as age 62 and average lifespan is in the mid- to high 70s.

    The tragedy is that Social Security (and, incidentally, Medicaid) premiums will need to increase even further (and likely repeatedly) in order to keep the intergenerational promise you mention. Very few recipients will be sanguine about their children and grandchildren having to pay more to support their elders, many of whom mistakenly believed a government that told them they were talking care of themselves by paying into the system.

  16. Porter Lansing 2019-04-28

    The Republicans are desperate to destroy Social Security and Medicare. These two programs demonstrate government at its best. The federal government runs these two extremely popular programs more efficiently, universally, securely, and effectively than the private sector does with its alternatives — or indeed could, no matter how well those private sector programs were designed. Because Social Security and Medicare are government programs that work so well, the Republican elite — with its seemingly religious belief that the private sector is always the best — hates them. Nancy Altman
    President, Social Security Works

    https://www.huffpost.com/entry/the-republican-obsession-with-dismantling-social-security_b_587a4bb9e4b077a19d180e11

  17. bearcreekbat 2019-04-29

    Wyland’s explanation for labeling social security a “transfer payment” fails to address a fundamental fact. The only persons eligible for social security benefits are those that have paid in a sufficient number of regular payments to the program for the minimum number of years necessary to qualify for disability or retirement compensation.

    It would seem social security payments are similar to South Dakota Retirement System payments. Does anyone consider SDRS disability or retirement benefits to be “transfer payments?”

    Can Wyland identify any other programs paying “transfer payments” to direct contributors, and conditions compensation on working a sufficient number of years and making a sufficient number of monthly payments into the fund?

    It sure sounds more like insurance, and brings to mind the old adage, “if it quacks and walks like a duck . . . .”

  18. Porter Lansing 2019-04-29

    Wyland is trying to bad-mouth Social Security by labeling it welfare. Why?
    In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return.
    – I’ve paid in from every paycheck since age fourteen and I’m happy and proud to know I’m helping the older end of the Baby Boomers in their retirement. The younger generations will be helping me.
    – Why do you believe America receives no benefit? What is your ulterior motivation for this?

  19. Cory Allen Heidelberger Post author | 2019-04-29

    We should celebrate the general welfare. The Founding Fathers did.

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