June 2, 2005
PART WAY THERE:
Can the rich, famous save Social Security? (Dennis Cauchon, 5/31/05, USA TODAY)
Can Tiger Woods save Social Security?
The question is not as far-fetched as it sounds. President Bush broke political orthodoxy April 28 when he proposed that Social Security benefits grow more slowly for "better off" workers than low-income workers.
The president's proposal raised the tantalizing question: Can Social Security be fixed on the backs of the wealthy — leaving most Americans unscathed?
The populist theme of targeting the affluent has become one of the most talked-about approaches for solving the retirement system's financial problems. Like his call for individual investment accounts, the president's willingness to discuss treating the rich and poor differently has opened a new chapter in the Social Security debate.
Taxing all income and capping benefits would fix Social Security — mathematically, at least. The program would run a permanent surplus if all income — including the millions earned by athletes, movie stars and corporate tycoons — were subject to the 12.4% Social Security tax and if benefits for the affluent were capped at current levels, according to the Social Security Administration.
Americans say they like the idea of making the rich pay more and get less. More than two-thirds support cutting benefits for the affluent and applying the Social Security tax to all income, not just the first $90,000 earned, according to a USA TODAY/CNN/Gallup Poll in February. [...]
Call it the Tiger Woods effect. The nation's highest-paid athlete — $80 million last year, Forbes magazine estimates — illustrates how Social Security tax hikes and benefit cuts would work:
•Cut Woods' benefits: The golfer's benefit would be reduced by about $3,500 a year starting in 2042 when Woods turns 67, under the plan mentioned by Bush.
•Tax Woods' first $140,000 of income: The golfer would pay an extra $6,200 a year if the amount of income covered by the Social Security tax were raised from $90,000 to $140,000, a figure on the high end of recent proposals.
•Tax all of Woods' earnings: The golfer would pay $10 million in Social Security taxes a year, up from $11,160.
Social Security's long-term deficit — $3.7 trillion over 75 years — is so severe that little short of $10 million a year from Tiger Woods and comparable amounts from other rich people will bring the system into balance.
If the wealthy paid 12.4% payroll taxes on all their income but kept their current benefits, Social Security's deficit immediately would become a projected $540 million surplus, the Social Security Administration estimates. [...]
Social Security is well known for helping reduce the number of elderly living in poverty from 35% in 1960 to 10% today. Less well known is the program's payoff for the affluent.
The program's biggest benefit checks go to retirees living in the 1.5 million households that enjoy $100,000 or more in annual income. These households receive an average of about $19,781 a year in Social Security benefits, according to the Internal Revenue Service. That's about $6,000 a year more than households earning less than $100,000. Dole, 81, says he gets $2,120 a month.
The key is to reduce the benefits far more drastically and starting at a much lower level of post-retirement wealth and to combine all this with private accounts. Posted by Orrin Judd at June 2, 2005 11:39 PM