Repeat after me: there is no Social Security crisis. Ladies and gentlemen, let’s turn the microphone over to the Congressional Budget Office from July of last year:
CBO estimates the 75 year actuarial balance to be -0.6 percent of gross domestic product (GDP); that is, under current law, the resources dedicated to financing the program over the next 75 years fall short of the benefits that will be owed to beneficiaries by about 0.6 percent of GDP. That figure is the amount by which the Social Security payroll tax would have to be raised or scheduled benefits reduced for the systems revenues to be sufficient to cover scheduled benefits. In other words, to bring the program into actuarial balance over the 75 years, payroll taxes would have to be increased immediately by 0.6 percent of GDP and kept at that higher rate, or scheduled benefits would have to be reduced by an equivalent amount, or some combination of those changes and others would have to be implemented.
Once the temporary Social Security tax reduction goes away, we’ll be back to 7.65% for OASDI + Medicare Part A. So what the CBO is telling us is that we could increase the tax from 7.65% to 8.25% immediately and solve the problem for the next 75 years.
CBO also lays out some policy options, and how much of the 0.6%-of-GDP gap each of them would close. One option is to eliminate the cap on the Social Security payroll tax, so that income above $106,800 would also pay the 6.2% OASDI tax. If we did this, the 0.6% gap would close by … wait for it … 0.6%. (See the chart on page xi.)
Now then. You typically hear it said that people will have to work longer in order to close the gap. “Working longer” means “delaying when people can receive Social Security retirement benefits,” which in turn (because people have finite lives) means “decreasing the total amount that people will receive in retirement benefits over their lives.” That’s the whole point: make them work longer so that Social Security pays out less.
Since Social Security is the major source of income for a large fraction of Americans (I’ll find a citation for that; I just saw it cited the other day), and it’s not the major source of income for wealthy people, “increasing the retirement age” is another way of saying “decreasing benefits for the poor and middle-income Americans.” The CBO says that doing this would close about half the gap. (See the same chart on page xi.)
On the other side, we could tax higher-income earners. Taxing income above $107,000 would affect approximately the top 13% of tax returns, and would solve the entire Social Security “problem” in one fell swoop.
So, to review, two available options are
- increase the retirement age, which, virtually by definition, is equivalent to cutting benefits for poor and middle-income earners, and would solve half the problem.
remove the cap on Social Security taxes, which would affect the top 13% of tax returns and solve the entire problem.
Please keep this in mind whenever you hear some Very Serious Person intone that we’ll all need to tighten our belts and work longer to keep Social Security afloat.