Uneasy Rhetoric

The American Academy of Actuaries has a “game” on their website where you can decide how you want to reform Social Security.

The game gives you a range of options, from raising the tax rate to partial privatization. As I expected, their take on privatization is optimistic, claiming it can help alleviate 50% of the projected Social Security shortfall.

However, a much more straightforward option exists. Currently, employees earning up to $87,900 (according to the Actuaries site) pay 6.2% of their income in social security taxes (the employer matches this; self-employed people pay the full 12.4%). A flat tax, right?

Wrong. You only pay 6.2% on the first $87,900 you earn. A person earning $100,000 pays an actual social security tax rate of 5.45%, and it goes down as income goes up. The Social Security tax is actually a regressive tax.

Since everyone who meets the minimum qualifications gets social security, even the very wealthy, there is no reason why people with six-figure incomes should be able to pay less in Social Security taxes than the rest of us. According to the Actuaries site, simply eliminating the income cap for Social Security taxes will get us 77% of the way toward solving the so-called “crisis.” Far better than privatization, and far easier, and probably much, much less expensive, to implement.

Pair this with a modest income test where benefits are reduced for those with very high retirement incomes, and problem solved.

Unfortunately, because this would mean raising taxes and reducing benefits on high-wage-earners, it won’t happen under the current administration.