Social Security gets older and it can get better
Aug. 14 is the 80th anniversary of when Social Security was signed into law. It is the most popular program ever created in this country. Almost 1 in 5 Americans depend on its payments, including more than 16 million children, as well as the elderly and people with disabilities. For most of the millennial generation now in their early working years, Social Security is the only retirement income they are likely to have and the only way to require their employers to pitch in.
Ironically, however, young people have been taught to believe that Social Security will not be there for them when they reach retirement years because it will have run out of money. That prediction happens to be a cruel deception.
What is the truth? Social Security has enough money coming in to pay about three-fourths of the current benefit level for the Gen Xers and millennials when their time comes. The Social Security Trustees predict 77 percent of current benefits in 2033 and 72 percent in 2087.
Of course it would be best if, 75 years from now, Social Security could pay 100 percent instead of 72 percent. There is a simple way to do that, and it involves correcting a major inequity in the current system.
The simple solution is to remove the cap on wages which are subject to the Social Security payroll tax. That tax is 6.2 percent of everyone's wages ... except, not exactly.
It is 6.2 percent if your wages are up to $118,500 a year, which applies to all but the top few percent of wage earners. If your pay is higher than that, you and your employer pay no additional Social Security tax at all.
That means your overall effective tax rate goes down as your wages soar above the cap of $118,500. $237,000 gets you a tax rate of 3.1 percent; $475,000 gets 1.55 percent and a salary of $1 million gets 0.775 percent. That's great for you if you're one of the fortunate few, but incredibly unfair for the vast majority of working Americans.
Removing the cap at $118,500 and subjecting all wages to the 6.2 percent payroll tax removes this inequity and provides the additional revenue needed to insure full benefits for today's young people. All without the need to cut any benefits, raise the age to start benefits or reduce the formula for the annual cost-of-living increases.
In fact, there would be enough to consider expanding some of Social Security's benefits. Several good ideas have been advanced:
• Give a work history credit for people who have reduced or quit their jobs to care for a family member.
• Restore the survivor benefit for people up to age 22 who are in postsecondary education.
• Adjust the initial benefit up for low-wage workers.
• Increase the cost-of-living adjustment formula.
Let's take the opportunity of Social Security's birthday to learn the facts about it, discard the false scare tactics and make the changes needed. Scrapping the cap on wages subject to the payroll tax will ensure that young people will get their full earned Social Security benefits.
Buddy Robinson is the staff director of the Minnesota Citizens Federation – Northeast.