Congress has put off making tough choices on Social Security for years, but the bill is coming due soon, and it\u2019s looking like taxpayers will pick up the tab.<\/p>\n
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That\u2019s because a small but growing group of lawmakers has signaled openness to shoring up Social Security\u2019s finances by raising more revenue via taxes. The group includes some Republicans, who have traditionally viewed tax hikes as anathema. <\/p>\n
For decades, Social Security was viewed as the \u201cthird rail\u201d in American politics, with any suggestion of tax hikes or benefit cuts producing swift blowback.<\/p>\n
But as retirees face the prospect of much smaller checks, the political calculation may be changing. \u00a0Projections earlier this year showed that the Social Security trust fund will run out of money sooner than previously thought, meaning\u00a0benefits would face a 22% cut by 2032\u00a0unless adjustments are enacted.<\/p>\n
Revenue from payroll taxes has been insufficient to fund current benefits, and the trust fund covers the gap. But once it runs out, Social Security will only be able to distribute what comes in.<\/p>\n
For now, workers and employers each pay a 6.2% tax on wages of up to $184,500 a year. Any additional wages beyond that cap aren\u2019t subject to the tax, meaning the wealthy pay a relatively small share of their income to support Social Security compared to lower-income workers.<\/p>\n
\u201cWe\u2019ve got too many people who say, \u2018Well, we have to stay within the current income level or stay at the current tax rate,\u2019\u201d Rep. Tom Cole, R-Okla., told the Washington Post<\/em> earlier this month. \u201cI\u2019m willing to look at the tax rate. I am willing to raise the amount of income through tax.\u201d<\/p>\nThe influential chairman of the House Appropriations Committee suggested the mathematics of Social Security are overshadowing the politics.<\/p>\n
\u201cAnd believe me, you\u2019ll have a lot bigger problem if it goes bankrupt than you\u2019ll have keeping it whole, because people will feel cheated,\u201d he added.<\/p>\n
Rep. Lloyd K. Smucker, R-Penn., indicated this month that raising the income cap could be part of the solution to the trust fund\u2019s insolvency.<\/p>\n
Like Cole\u2019s, his voice also carries extra weight as he is a top candidate to be the leading Republican on the House Budget Committee in the next Congress.<\/p>\n
\u201cYou\u2019ll probably have to do something on the payroll half of the money being paid into the system,\u201d Smucker told reporters, according to Roll Call<\/em>.<\/p>\nHe added that lawmakers can\u2019t allow benefit cuts to happen in six years, \u201cand the only way you address that is to start being serious and realistic about the math problem and the demographics.\u201d<\/p>\n
Another Republican, Sen. Bernie Moreno of Ohio,\u00a0touted a plan to raise more revenue via payroll taxes in a\u00a0New York Times<\/em>\u00a0op-ed he wrote with Massachusetts Democrat Sen.\u00a0Elizabeth Warren in June.<\/p>\nThe senators pointed out that the vast majority of Americans make less than the $184,500 cap, meaning Social Security taxes apply to 100% of their income while top earners only pay on a fraction of theirs.<\/p>\n
\u201cWhy should a middle-class nurse pay a larger share of her paycheck than a wealthy corporate lawyer?\u201d they wrote. \u201cThis is doubly unfair in an economy in which top earners\u2019 wages, over time, have pulled far ahead of those of the average worker.\u201d<\/p>\n
Moreno and Warren proposed removing the tax cap, citing a\u00a0report from the Peter G. Peterson Foundation\u00a0that estimated such a change would generate about $3 trillion for the program over 10 years.<\/p>\n
Josh Turek, a Democratic candidate for Iowa\u2019s U.S. Senate seat, has also called for the elimination of the tax cap, saying the wealthy \u201cpay Social Security tax for the first few minutes of the year, but we have teachers\u2026 that are paying year-round.\u201d<\/p>\n
Removing the cap would raise enough revenue to cover more than half of Social Security\u2019s funding gap, but not all of it, according to the Committee for a Responsible Federal Budget.<\/p>\n
So either more revenue is needed or benefits needs to take some form of a haircut\u2014and no one on Capitol Hill is talking about cuts.<\/p>\n
Sen. Sheldon Whitehouse, D-R.I., and Rep. Brendan Boyle, D-Pa., have offered a plan to raise more revenue as well. Rather than eliminate the cap, however, it would lift the payroll tax income threshold to $400,000 and also subject investment earnings to the levy.<\/p>\n
Another proposal by Sens. Bill Cassidy, R-La., and Tim Kaine, D-Va., would maintain current benefits and continue avoiding any pain for recipients or taxpayers by instead\u00a0relying on the stock market\u2014along with a mountain of fresh debt.<\/p>\n
Their idea is for the federal government to borrow $1.5 trillion for an investment fund that would be loaded with stocks and other risk assets, which would accumulate gains for 75 years and offer better returns than Treasury bonds would.<\/p>\n
At the same time, the Cassidy-Kaine plan would require another $25.1 trillion in borrowing to cover the gap between Social Security\u2019s revenue and benefits during those 75 years. Returns from the investment fund would then pay down the $26.6 trillion in new total borrowing.<\/p>\n
But\u00a0Boston College\u2019s Center for Retirement Research ran some simulations\u00a0recently and found that the senators\u2019 plan is unlikely to work. While the historical average of stock returns could deliver more than enough revenue\u2014assuming they continue that way over the next several decades\u2014the market doesn\u2019t go in a straight line.<\/p>\n
\u201cAfter incorporating the volatility in equity returns, however, the results show that the gamble does not always pay off,\u201d authors Anqi Chen, Alicia Munnell, Jean-Pierre Aubry\u00a0wrote in a report.<\/p>\n<\/div>\n
#Social #Security #insolvency #nears #lawmakers #open #tax #hikeseven #Republicans<\/p>\n","protected":false},"excerpt":{"rendered":"
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