The CBO has released a report detailing the effects of a wide range of different options that will extend Social Security benefits passed 2039 – the date that current projections yield as the time when it no longer can fulfill its full obligations.
The report looks at altering Social Security taxation, changing benefits, raising the retirement age, reducing cost of living adjustments and other approaches. Most of these will fail to accomplish the task at hand. Raising the retirement age to 70 will not be enough, for example.
There is one option that will not only make the Social Security fund solvent but can also be done without changing any of the current benefits or eligibility requirements – get rid of the taxable maximum.
Of the 30 options the CBO looked at, the only ones that did better than this option either increased taxes for all of us or lowered benefits. This option simply means that all Americans are taxed the same no matter how much they earn. It is one of the simplest to implement and the fairest to everyone, even those who would see higher taxes.
That is because this not only keeps Social Security solvent but actually results in increased benefits for those who would pay more.
Currently, both employee and employer each pay a 6.2% payroll tax. But this is only imposed on wages up to a taxable maximum, which today is a little over $106,000. Any wages above this are not taxed at all. So the highest wage earners pay a smaller percentage of their wages for Social Security than the rest of us.
In 1983, 91% of all earnings from jobs fell below the maximum. But the highest earner’s salaries have increased so rapidly since then that in 2009, only 83% of the earnings were below the maximum. Simply removing this maximum would make Social Security solvent for almost 75 years.
Removing the taxable maximum means that everyone pays the same percentage of their earnings to Social Security, no matter how much they make; all Americans pay equally.
These higher taxes for those making the most amount of money does not mean that they will not get increased benefits. The CBO’s calculations include higher benefits for the higher earners than they would receive now. They get most of their money back, just like the rest of us. The benefit calculation remains the same as it is currently.
So, they may have to pay more now – although they would simply be paying the same percentage as the rest of us – but they would also get more back when they retire.
Doing this will make keep Social Security solvent for almost 75 years. It is the fairest of the options with the least effect on the vast majority of people. And even those whom it does affect will see increased benefits.
SImply taxing all Americans the same could save Social Security.