Increasing taxable wages does not "fix" Social Security

rdquinn

Sep 2

As the next election gets closer we will hear more about "fixing" Social Security. Fixing should mean making the program permanently sustainable.

To make Social Security permanently sustainable we need to make changes now that make the program 100% solvent for the next 75 years and amend the law so that automatic changes to revenue are made in the future as needed to retain that solvency.

Proposals to increase the wages that are taxed do not fix Social Security. Here are three alternatives. The most talked about being taxing wages above $400,000. The funds run out sooner than shown below with any changes that increase benefits as has also been proposed.

TAX ALL WAGES

Social Security remains insolvent. The trust funds will run out in 2059 at which point all beneficiaries will face a sudden 12% benefit cut.

Tax 90% OF WAGES

Social Security remains insolvent. The trust funds will run out in 2039 at which point all beneficiaries will face a sudden 15% benefit cut.

TAXE WAGES ABOVE $400,000

Security remains insolvent. The trust funds will run out in 2044 at which point all beneficiaries will face a sudden 11% benefit cut.

The reality is that in the absence of significant cuts in benefits, making and keeping Social Security solvent requires more revenue in the form of higher tax rates on wages or other new taxes.

Taxes should be proportional to wages and benefits meaning no one is taxed without receiving some benefit for those taxes although as is the case now, the benefits should be based on a formula reflecting income levels. Simply put, lower income beneficiary receive a bigger bang for their buck. That's what the benefit formula does today.