Atlanticatia wrote:Just make the 12.4% Social Security payroll tax apply to all wages - by asking the top 10% of earners to pay all of their income in SS tax, like the bottom 90% do.
That way, SS is saved, benefits are not cut, and 90% of earners do not see a tax increase.
Removing the earnings cap would improve the solvency of the fund considerably. How much it would improve it depends on whether the associated cap on PAYMENTS is also removed.
Though it's 5 years old now, this pdf from CRS is very informative about the effects of raising or eliminating the cap (aka taxable income base).
In Table 2 Option 3, the more politically fraught option of taxing the rich without giving them any increase in payments can be seen to actually go beyond maintaining the fund in solvency and be a source of general revenue for government, on a scale of 75 years.
The cap on payments would need to be designed and added to the legislation, because the current payment "cap" is nothing more than a calculation based on the taxable income cap.
That would be a non-starter with Republicans, and even Democrats may object to raising revenue for general government from a FLAT income/payroll tax, which is what FICA would then be.
In Table 2 Option 2 the cap is removed on taxable income AND on maximum payment rates (that is, the tax on income is uncapped and the payments follow by formula). Like Option 3 it "saves" social security for at least 75 years, while also maintaining the principle that the more a high income earner pays in the more they will get out. Of course they don't get everything back, just as low income earners don't pay in everything they get out, but it avoids the negative perception of taxing the rich without giving them anything at all.
Table 2 Option 1 is hardly any reform, but still I think better than nothing. It involves raising the level of taxable income (and correspondingly the maximum payments) periodically, to whatever level necessary to keep 90% of all taxable income subject to FICA. From Figure 1 you can see it was briefly at that level (grey line) around 1982/83 and has been falling since.
Option 2 is my preferred option: remove the cap on taxable income and leave the existing calculations to determine payments. It's sufficient to save SS effectively forever and doesn't over-reach by becoming in part a general tax.