June 2, 2013


5 Ways To Fix Social Security (Emily Brandon, 2/18/13, US News)

Here are five potential Social Security changes, and how much of the budget shortfall they would address:

Increase Social Security taxes. Workers currently pay 6.2 percent of their earnings into the Social Security system up to $113,700 in 2013. If that tax rate was gradually increased to 7.2 percent by 2036 it would eliminate just over half (53 percent) of Social Security's deficit. And if workers and employers each paid 7.6 percent, it would eliminate the financing gap. Some 69 percent of Americans support raising their own Social Security taxes by 1 percent, according to a recent National Academy of Social Insurance (NASI) and Mathew Greenwald and Associates online survey of 2,000 Americans ages 21 and older.

Lift the payroll tax cap. Workers currently pay Social Security taxes on up to $113,700 of earned income in 2013. Individuals who earn more than this threshold don't pay Social Security taxes on that income. If this tax cap was gradually eliminated between 2013 and 2022 it would reduce the deficit by 71 percent. And if the tax cap were increased over 5 years to include 90 percent of all earnings (currently about 84 percent of earnings are covered) it would reduce the financing gap by 30 percent. This change would affect the 5 percent of workers whose earnings exceed the cap, and they would receive somewhat higher benefits when they retire. Lifting the payroll tax cap is a popular idea, with 68 percent of Americans supporting the complete elimination of the cap, NASI found.

Raise the retirement age. The full retirement age at which workers can collect unreduced Social Security benefits is currently scheduled to increase to 67 for everyone born in 1960 or later. If the full retirement age was further increased to 68 by 2028 it would reduce benefits by about 7 percent and eliminate 15 percent of Social Security's funding shortfall. If the full retirement age was increased to 70 by 2050 it would reduce benefits by about 21 percent and the deficit by a quarter. Raising the retirement age is an unpopular idea, with only about a third (37 percent) of Americans supporting raising the retirement age to 68 and just over a quarter (28 percent) in favor of increasing the full retirement age to 70.

Means-test. Another potential Social Security change is to reduce or eliminate Social Security benefits for people who have retirement incomes above a certain threshold. For example, if benefits were phased out for retirees with non-Social Security income between $55,000 and $110,000, the deficit would be reduced by 20 percent. 

Conservatives need to explain why personal accounts are a superior idea in themselves, not pretend that the current system faces a significant crisis.

Posted by at June 2, 2013 9:50 AM

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