Found
here. Our comments in bold.
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Friends,
I run into lots of young people who don’t believe Social Security will be there for them when they retire.
They have reason for concern. The trustees of the Social Security Trust Fund — of which yours truly was once a member
(Dr. Reich is apparently proud of his work as a former SS trustee. We were unable to document this claim, and his linkedin profile doesn't mention it.)
— just released their annual report on Social Security’s future. The report says Social Security will be able to pay full benefits until 2034 but then faces a significant funding shortfall. After 2034, it can pay only about 80 percent of scheduled benefits.
The biggest reason Social Security is running out of money is not what you (and the media) think it is: that boomer retirees are, or will soon be, soaking it all up. (Actually, it is already out of money.)
The Social Security trustees anticipated the boom in boomer retirements. This is why Social Security was amended back in 1983, to gradually increase the age for collecting full retirement benefits from age 65 to 67. That change is helping finance the boomers’ retirement. (Oh, so the trustees delayed benefits? Isn't delaying benefits the same thing as cutting benefits?
Dr. Reich is now going to make his argument. We will allow him to do so before we join back in.)
So what did the trustees fail to anticipate? Answer: the degree of income inequality in 21st century America.
Put simply, a big part of the American working population is earning less than the Social Security trustees (including me) anticipated decades ago — and therefore paying less in Social Security payroll tax.
Had the pay of American workers kept up with what had been the trend decades ago — and kept up with their own increasing productivity — their Social Security payroll tax payments would have been enough to keep the program flush.
At the same time, a much larger chunk of the nation’s total income is going to the top than was expected decades ago.
Here’s the thing: Income subject to the payroll tax is capped. Every dollar of earnings in excess of the cap is not subject to Social Security payroll taxes. This year’s cap is $160,200.
The Social Security cap is adjusted every year for inflation, but the adjustment is tiny compared to what’s happened to incomes at the top.
As the rich have become far richer, more and more of the total income earned by Americans has become concentrated at the top. Therefore, more and more total income escapes the Social Security payroll tax. (Dr. Reich's argument is specious. SS is predominately funded by the middle class on down. This is the way it has always been. The SS cap by definition defines the program as being funded by earners other than the rich, ostensibly because SS benefits are almost all paid to people other than the rich.
Therefore, it is impossible for the trustees to fail to account for "inequality" because any supposed shift in income from being SS taxable to not being SS taxable does not change the overall taxable amount. Dr. Reich would need to demonstrate that there was less actual revenue obtained because because more earners were coming up short of the cap. In other words, there would need to be a gap of sorts between the highest earners under the cap and the cap itself.
Let's take a look at the revenues and expenditures of the SS trust fund to see if we can discern the results of the 1983 reform of SS he mentioned above, and any supposed effect of income inequality:
Notice that subsequent to 1983 the SS deficit increased for several years until the Reagan booming economy kicked in about 1986. This economic upturn had a secondary benefit of reducing SS deficits. The reductions in the SS deficits continued all the way until the early 2000s recession. The deficits we fairly small through GW Bush's presidency, until the Great Recession hit. Then for four straight years the SS deficit was in excess of one trillion dollars, then stayed fairly level until COVID. Then they exploded.
So that's the deficits, which are clearly economic-related.
Now for the revenues. Revenues increased every year until the early 2000s recession, but started upward again in 2004. There was another drop in the Great Recession, but the recovery was relatively quick. Thereafter there was never another drop in revenue.
Conclusions: The 1983 reforms had no discernible effects. And, there is no evidence that inequality has inhibited revenues or influenced expenditures. Rather, economic rises and falls clearly are a primary influence of both SS revenues and expenditures.)
The obvious solution to Social Security’s funding shortfall 11 years from now is to lift the cap so that the super-rich pay more in Social Security taxes. (Of course, the answer always is more taxes. But as we have seen, it's not a revenue problem. The problem is structural. SS cannot work, since it relies on redistribution. Like every government payout program, there will always be more and more takers and fewer and fewer payers.)
To make sure it’s the super-rich — and not the upper middle class — who pay, (Why?)
it makes sense to eliminate the cap altogether on earnings in excess of, say, $400,000. (Making changes that increase taxes on high income earners is a tacit admission that SS is not a retirement plan, it is a wealth redistribution plan. This is because it is a tax increase towards people who will not receive any benefit whatsoever.
If someone is taxed without benefit, that is a welfare program.
By the way, the way Dr. Reich phrases this is very odd. Currently the cap is set at $160,200 of income, after which income is not subject to SS tax. So a worker would pay SS tax until his income exceeded the cap, after which his income above the cap would not be taxed.
But Dr. Reich wants to "eliminate this cap altogether." One would expect that he wants income above $160,200 to be taxed. But wait. Then he says taxes should be levied "on earnings in excess of, say, $400,000." That means he wants to maintain the non-taxed status of income received between $160,200 and $400,000, above which SS taxes are resumed.
Does that strike anyone as extremely nonsensical?
Below he will admit he's echoing the Biden plan, which states,
Under current law, the 12.4 percent Social Security (OASDI) employer and employee combined payroll tax rate applies to earnings up to the annual taxable maximum level ($137,700 in 2020).
The Biden plan increases Social Security taxes by creating a “donut hole” in the payroll tax structure. While earnings immediately above the current taxable maximum would continue to be exempt from Social Security taxes, earnings above $400,000 would be taxed at the 12.4 percent rate. However, the new taxes on earnings above $400,000 would not trigger additional benefits.
Over time, the donut hole would disappear and all earnings would be subject to full payroll taxes. The reason for this disappearance is that the annual taxable maximum level ($137,700 in 2020) would continue to grow with average wage growth, as under current law, while the $400,000 threshold would remain fixed. The donut hole, therefore, disappears once the annual taxable maximum level reaches $400,000.
This means a worker would be taxed up to the cap [$160,200 in 2023], then would have a reprieve where there are no SS taxes until the worker's income exceeds $400,000. Strangely, at that point taxation would resume. So there's a window of income with no SS taxation, which incidentally would gradually disappear as the cap increases year by year. So that means the upper middle class will indeed pay at some point, despite Dr. Reich's statement.
But even stranger, why is this something He's advocating for? What are the benefits of carving out the exception? And why would this appeal to a voter? If someone makes, say, $300,000, absolutely nothing changes.
How does carving out an income window for the upper middle class make any sense, especially one that disappears over the course of a few years? Is the upper middle class a constituency the left wants to attract? Is there some special thing about this band of income which makes it off limits? Telling a voter "We are not going to tax you more for a while" is not a winning campaign strategy, and we certainly know that leftists do these things for no other reason than their political appeal.
It makes no sense.
Further, it is worth noting that the Biden plan includes some pretty substantial SS benefit increases. This means that SS beneficiaries are going to eat up all of that additional tax and more.
This is hardly the solution Dr. Reich thinks it is. But of course, Dr. Reich isn't looking for a solution, he's parroting The Narrative. The Narrative services The Agenda, and The Agenda is to overthrow the system. It's a power strategy. For the Left, everything is about power.)
As it happens, Joe Biden campaigned for the White House
on a plan to do exactly this.
What happened to that plan? The budget Biden proposed last month made no mention of any tax increase linked to Social Security (although it did include tax increases on high earners and corporations as a way to extend the solvency of Medicare by 25 years).
I suspect Biden’s plan for Social Security was a casualty of the bare-knuckled politics surrounding both Social Security and the debt ceiling. Biden doesn’t want to give Republicans any opening to debate Social Security in the coming fight over lifting the ceiling.
Hopefully, he’ll revive his plan for Social Security after that brawl. The long-term future of Social Security depends on it.
What do you think?
