Scoping out a new Social Security tax
You might not realize this if you’ve been listening to all the warnings about “entitlements” emanating from Congress, but Social Security remains the nation’s most popular government program -- and the vast majority of Americans want lawmakers to protect it, without cutting benefits.
In fact, a sizable majority want Congress to raise benefits.
Those conclusions, drawn from a recent opinion poll conducted for the National Academy of Social Insurance, an organization of social insurance experts, are worth keeping in mind as President Obama addresses the state of the union tonight and as budget battles continue in Washington.
They also provide some context for a new study by the Congressional Research Service of how -- and why -- to raise the payroll tax to shore up the program’s fiscal condition.
First, the poll. The survey found that 89% of Americans consider Social Security benefits to be “more important than ever” today, plainly a reflection of the disappearance of corporate pensions and declines in the value of people’s financial portfolios, including their homes. The results cut across all generations -- 93% of seniors and baby boomers agreed with that statement, along with 87% of Generation X (born from 1965 to 1979) and 84% of Generation Y (born in 1980 and afterward) -- and all income levels.
Benefit increases also drew lots of approval, with 64% favoring a higher annual cost-of-living increase for beneficiaries and 57% favoring a higher minimum retirement benefit. A third option, to increase benefits for all workers, drew 47% approval.
Overall, 68% of respondents also favored eliminating the payroll tax cap, which is set this year at $113,700. All wage income below that level is taxed at 12.4%, divided equally between the worker and the employer; wages above that level are untaxed. Experts at the National Academy of Social Insurance and elsewhere agree that raising or eliminating the cap would effect the most dramatic improvement on the program’s finances.
That brings us to the Congressional Research Service analysis. The paper, by public finance expert Thomas Hungerford, observes that the payroll tax, which once covered more than 90% of all wage earnings in the country, now only covers less than 83%. That’s because income inequality has funneled higher wages to fewer taxpayers at the high end of the income scale. If the tax were again to cover 90% of all wages, the cap would have to be raised to more than $215,000.
Hungerford examines several options for increasing the payroll tax. All are worth considering. They include raising the cap to the 90% threshold while leaving the rate in place, which would increase the tax on people earning over $113,700; raising the cap but reducing the rate, which would amount to a tax cut for lower- and middle-income Americans but an increase for high earners; or raising the cap for the standard rate to $215,00 or more and imposing a separate 2% tax increase on earnings over that limit.
Put these two studies together and the conclusion is inescapable: Americans want Social Secuirty preserved or increased, and they’re willing to pay more in taxes to achieve the goal. Are President Obama and the Congress listening?
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