Writing as a New Jersey Star-Ledger “guest columnist,” University professor and occasional political appointee Richard F. Keevey suggests A solution for the social security dilemma; eliminate the earnings cap for Social Security taxes. Keevey comes to his conclusion after noting other proposed fixes, such as raising the retirement age and “privatization” (private investment accounts controlled within Social Security. All of these approaches have merit, he says, but none match his “more simple approach”:
Specifically, instead of taxing only the first $118,500 (plus annual increases based on COLA), individuals would pay on full salary. Thus an individual earning, for example, $750,000 would pay the rate on the full salary rather than just to $118,500. There would be no increase on others.
This approach would solve the social security dilemma and guarantee payments to all citizens, particularly seniors most in need for the next 75 years and lessen the projected debt. Just as important, it would remove social security from the national crisis agenda, making federal budgetary decision-making simpler and focusing attention to where it should be - containing health-care costs and reforming national tax policy.
I left these comments:
Since inception, Social Security tax rates on workers have risen from 2% to 12.4% (including the alleged “employers share,” which is only a gimmick to hide the fact that the worker is actually paying the full freight). Over that same time frame, compensation subject to SS taxes has risen from $3000 to $118,500. Despite that gargantuan, double-barreled confiscation of Americans’ hard-earned wealth, the politicians have over-promised the “earned benefits” by at least $13.5 trillion (some estimates are much higher).
It’s a fantasy to think more taxes would make SS sustainable. Expanding the tax base to all income would just give the politicians even more incentive to over-promise benefits. Overspending is never a tax problem. The fundamental problem is political control of SS proceeds and benefits. Wherever politicians control proceeds and benefits (Medicare, public employee pensions, highway trust funds, etc.) there is an “unfunded liability” or “under-funding” crisis. SS is no different. Keevey’s “solution” is to force the most productive taxpayers to pay for the politicians’ gross mismanagement of the system. I can’t think of anything more counterproductive than expanding the tax base.
And what will plundering people who have already “contributed” the current maximum amount get them in return for their massive increase in taxes? Keevey doesn’t say. But we can guess the answer; nothing! One of the least unfair aspects of the current Social Security set-up is that the benefit payout is at least loosely correlated with taxes paid in. True, benefits are skewed toward the lower end of the income scale. But at least people know that the more they pay, the more restitutional return they’ll get. That would make Social Security even more unfair than it already is, because it would break the already tenuous bond between “contributions” and benefits, and tip into overt wealth redistribution.
I say Social Security is fundamentally immoral, because everyone is forced into it whether they want it or not. It essentially punishes people who are responsible enough to plan their financial lives long-term, for the sake of people who aren’t.
Having said that, I understand that SS not going to be phased out and repealed, as it should, anytime soon. So I suggest, as a compromise between the status quo and full repeal, the next best thing—full privatization: Take control of SS “contributions” and “benefits” out of the hands of politicians. Convert the system into a private account set-up, so account ownership and control of investments is held in the individual “contributors” own name, like an Individual Retirement Account, preferably a Roth (since SS taxes are not income tax deductible when seized from workers’ paychecks).
What would be accomplished? Imagine . . .
- Real savings to replace the fraudulent “trust” fund that is spent by Congress in exchange for a promise to raise taxes on future generations to cover the phantom “surplus.”
- Unlike currently, each SS participant would have a property right to his savings: He can use his savings as fits his personal circumstances—buy an annuity for monthly payments, pay off a house, donate to a favorite charity, take a long-delayed vacation, invest it—and pass on unspent funds to his heirs.
- Each “contributor” getting quarterly statements showing his growing balance. (Let some politician suggest messing with that! Now that’s a real “lockbox.”)
- No more politicians using SS for vote-buying or demonization of opponents for political advantage.
- Pride in knowing your future benefits are funded by your own earnings, rather than sucked from younger workers’ pockets.
- No more national unfunded liability “crisis.”
While government has no right to impose forced savings, personal accounts would be far better, and far less unfair, than the status quo. What responsible, self-respecting person would object to that?
Social Security is Much Worse Than a Ponzi Scheme - and Here's How to End It—Richard M. Salsman