February 18, 2005
TIME TO MAKE THE DONUTS:
Can Graham pull off Social Security coup?: Unorthodox South Carolina Republican wants private accounts,
paid for with higher taxes on upper-income people (Tom Curry, 2/18/05, MSNBC)
An army of one, Republican Sen. Lindsey Graham of South Carolina, is trying to save Social Security as well as President Bush’s concept of private accounts.This week, Graham claimed to have found one solution to the problem of paying for the transition from the current pay-as-you-go system to a personal accounts system. Graham would raise the “cap” on earned income that is subject to the 6.2 percent Social Security tax. Currently the first $90,000 of a worker’s earned income is taxed.
Graham touted the idea of a “donut hole” in the Social Security tax. Graham hasn’t worked out exact numbers yet. But as a purely hypothetical example, the Social Security tax would apply to the first $90,000 of income, the next several thousands of dollars of income would be exempt, but then the tax would resume on all income above $300,000.
The “donut hole” would let upper-middle class Americans off the hook, yet would force higher-income people to help pay the cost of transitioning to private accounts.
According to the Congressional Budget Office, subjecting all earnings to the Social Security tax would raise more than $1 trillion over ten years, which is approximately equal to the initial ten-year cost of the transition to a private accounts system.
Posted by Orrin Judd at February 18, 2005 5:24 PM
A better idea might be to drop the cap, ignore the donut hole silliness, but lower the overall rate.
Posted by: PapayaSF at February 18, 2005 6:26 PMWhile this is marginally better than just dropping the cap entirely, you're still going to be dragging in an awful lot of small business owners along with all those evil corporate executive fat cats. (And in the spirit of disclosure, dropping the cap completely would increase my tax liability by several grand a year; Graham's plan would not.)
$300,000 is not even in the top (35%) bracket for filers who are single, married-filing-jointly or head-of-household right now. The threshold between 33% and 35% is $326,450 in 2005.
Posted by: Random Lawyer at February 18, 2005 6:56 PMI'd say Graham will remain an army of one, with no additional recruits.
As random says, many small business owners would get hit if >300K is taxed. Since small business is the engine that hires people, there isn't a prayer that Graham's idea would be adopted. Graham must have spent too much time with John Kerry.
Posted by: John J. Coupal at February 18, 2005 7:43 PMStupid, stupid, stupid idea.
Lower your salary and take the rest as profit.
Besides, they put more in, they get more out later. Doesn't that defeat the purpose????
Posted by: Sandy P at February 18, 2005 8:03 PMSandy is right - remember what John Edwards did. $26 million as dividends, just $600,000 as salary.
Besides, wouldn't it make more sense to raise the tax 0.2%, raise the cap to about $125,000, set up the private portion, and then dare the Democrats to vote against it? Everybody gets something. Just figure out a way to set those numbers in STONE.
Posted by: jim hamlen at February 18, 2005 10:32 PMJim: why raise the tax at all? I'd much rather have a higher cap plus a lower rate plus private accounts. Even harder for Democrats to vote against!
Posted by: PapayaSF at February 18, 2005 10:38 PM