Everyone in Washington says they want to save Social Security. But they are making proposals that hurt retirees and future retirees, attempting to reduce the program’s scope because of the increase in the amount of retirees instead of evening up its funding.
This payroll tax is regressive, since it deducts the same percentage per dollar from an office cleaner and a professional. Likewise, the current cap on income subject to Social Security taxes is $113,700. Meaning, someone earning that amount and someone who makes $1 million both pay the same amount in taxes, about $14,000.
President Obama’s proposal to change the Consumer Price Index (CPI) that rules over increases in Social Security benefits would extend this inequality. The idea is to replace the CPI with what is known as “chained CPI,” which in practice decreases the amount of money that beneficiaries receive. According to AARP, the change means a 0.3% annual decrease, leading to savings of $112 billion in 10 years. The amount of the cut is significant for the poorest retirees, who already barely manage to make ends meet.
The most logical measure to strengthen Social Security without impacting the deficit is to make the taxation more progressive. A couple of proposals to eliminate the current cap were introduced in the Senate. One would require 5.2% of taxpayers to pay more taxes and the other removes the cap for annual incomes above $250,000, impacting 1.3% of taxpayers. The first scenario ensures solvency for 65 years, while the second does so for at least 50 years, according to the Center for Economic and Policy Research.
These options introduced by Senators Tom Harkin (D-Iowa), Mark Begich (D-Alaska) and Bernie Sanders (I-Vt.) have lacked proper support from the Democratic caucus, who are afraid of being accused of wanting to raise taxes or expand benefits.
The idea that people contribute to their retirement only what they will use during retirement is a thing of the past. The benefits for today’s retirees are being paid with contributions from today’s workers. At the same time, retirees will receive a larger amount in benefits than what they contributed. These circumstances are a strong argument to change the debate about protecting Social Security. It is just a matter of having the guts to do it in Washington.