Well, the President has made few friends on the conservative side of the conservative side this week with his declaration that raising the caps on income subject to social security taxes is being considered. Many of them are calling the President on it because he said emphatically that he wasn’t going to raise taxes. While I’ll likely be accused of splitting hairs, I’d like to point out that he’s most certainly not raising taxes. He’s including more money in the category that’s taxable and that raises the revenue generated, but it’s not (strictly speaking) raising the tax. In some ways, it’s less fair than that.
Raising the tax in general means that everyone paying into the income-transfer system will pay more. Everyone. By leaving that rate alone and “only” raising the cap, then the burden of generating the additional social security revenue falls only on those making more than the previous cap, in this case $90,000 per year. The US Census for 2003 (latest year for which these figures are available) show that less than 20% of households make in excess of $86,900 per year. The number of people making more than that (let alone more than $90K) individually would logically be significantly less. But just for the sake of argument, let’s say 15% of the US working population makes more than the $90K cap. That means that while everyone’s social security has a problem – the funding is insufficient to maintain the system – it’s being casually suggested that the fix be forced from the hands of 15 out of 100 people. The person making $40K per year will have the issue resolved (allegedly) and not pay a dime for that benefit while the person making $100K per year will be paying taxes on that extra $10K and receive no additional benefit at all. Sound democratic to you?
However, the fact is that the system’s design makes it inevitable that if nothing is done, it will fail. We, taken as a whole, do not want it to fail. Ergo, something must be done. The question remains, what? The question of what will fix the system in as close to a permanent solution as possible remains open to debate and that is why the President is completely correct to keep the issue of raising caps on the table. Taken by itself, I don’t think raising the caps is a fair solution, but it might be a necessary part of a larger solution. The only way to know for sure is to examine it as an option and that’s what the President is doing. Frankly, that’s his job and I’m glad he’s doing it.
I would suggest, however, that something more than moving the caps needs to be done. As I mentioned, it’s not really fair to demand that a small segment of our society pay for the fix for all members of our society and get nothing in return. This is where the the President’s PRA’s come in. As it is right now, the money paid into the system goes to fund the retirement income of someone who’s already retired. Its not an account for each of us where the money we pay into it is generating interest to be paid back later. The PRA’s would make it exactly that. The opponents of the system usually leave out 2 very important items. First, we’re talking about an amount up to 4%. The impression a lot of the opposition is leaving the audience with is that all of a person’s social security taxes would go into the PRA. Not so. Second, and this one is really being obscured, the participation in the plan is completely volutary. If you don’t think it will work for you, decline the plan.
These issues deserve real and complete discussion and they should also be approached in a spirit of compromise. I applaud the President for that attitude in this matter.