The following is from a New York Times letter to the editor May 29, 2012:
Re “Entitlement Reform for the Entitled,” by Ezekiel J. Emanuel (Op-Ed, May 21), proposing graduated eligibility for Social Security and Medicare based on lifetime wealth:
The reason Social Security and Medicare are called “entitlements” is that people are entitled to them: they’ve worked and paid for them.
The idea of a means test, which in effect this article proposes, violates the very spirit of the programs.
To “save” Social Security, all that is needed is the removal of the cap on earnings taxable for Social Security, something that Barack Obama the candidate said he’d consider but that President Obama, alas, has not actively pursued.
Let those who earn more, pay more. No more free rides for the upper strata.
Interesting perspective is it not? People worked and paid for their benefits, except if you earn more than the tax cap for Social Security you can pay more for your benefits that are the same for everyone who reaches the earnings cap. In other words it’s ok to pay for your benefits and for a few other people too as long as you are in the “upper strata” – meaning you earn more than $110,100 a year. Surely the writer is not suggesting the maximum Social Security benefit be raised along with the taxation.
I wonder how many other Americans want to be taken care of by anyone who makes more than they do? You know, those Americans who are getting the free ride.
The truth, of course, is that there is no fair way to keep Social Security solvent because any idea will be viewed unfairly by some group. This is true even if the proposal merely lowers the growth of future benefits that do not exist today.
There are two other truths; the longer we wait to address the issues the more difficult it will be to solve and with the demise of the traditional pension and the inability or unwillingness of Americans to save for an adequate retirement on their own, Social Security is becoming more not less important to society. How is that for a pickle of priorities?
QUINNSCOMMENTARY 
Dick,
I would like your opinion of the various fixes proposed to both Social Security and medicare by the Bowles-Simpson Committee. I think there is much in that report to chew on, and your perspective wold be welcome.
Vince
LikeLike
Dick, thanks for the post.
You have to look at the sources of funding for Social Security and Medicare to get the entire story. Bottom line, the only thing that is more regressive than the payroll taxes that fund the programs are the benefits actually paid. So, a solution that would widen the already significant disparity seems most likely to undercut broad-based taxpayer/participant support.
“Social” Security is aptly named – it is truly progressive – those with lower earnings benefit disproportionately to their contributions; through use of a 35 year average of earnings and a three tiered formula dramatically weighted to favor lower paid. For Medicare, progressive results are achieved because the tax is applied to all wages to fund a hospital benefit that is the same for everyone who qualifies, while the Part A, B and D programs all have surcharges or added premiums or taxes following health reform.
Some Social Security funding basics:
– Workers contributions are matched by employers at 6.2% each on up to $110,100 in wages, where 5.3% goes to Old Age and Survivors, and .9% goes to disability.
– Expenditures exceeded taxes in 2010 and 2011, the first since 1983 (the last time Congress passed a law to “save” social security and Medicare).
– Annual deficits are projected to occur throughout the 75 year projection period.
– The deficit was $49 and $45 billion (2010 and 2011, respectively), projected to decline to total $66 billion between 2012 and 2018, before “rising steeply”.
– These deficits are the result of temporary reductions in the Social Security payroll tax rate, 2%, which reduced payroll tax revenues by $103 billion in 2011 and a projected $112 billion in 2012.
This is important because this deliberate reduction in taxes is to be made up with transfers of “general revenues” – where, of course, only 51% or so of Americans pay the bulk of general revenues through the income tax. So, right wrong or indifferent, the Congress and Administration succeeded in increasing the progressivity of the taxation base for Social Security in 2011 and 2012.
The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.67 percent of taxable payroll, up from 2.22 percent projected in last year’s report. In other words, if we simply raised rates, it would require a 22% increase to fill the gap (2.67%/12.4%).
For Medicare, the funding sources are more diverse and the program is in greater peril.
Medicare is funded primarily from three sources: payroll tax contributions (41%), general revenues (39%), and beneficiary premiums (12%) – each facet of Medicare is funded as follows:
– Part A: financed almost totally through a 2.9% tax on all wages,
– Part B: financed through general revenues (73%) and beneficiary premiums (25%)
– Part D: financed through general revenues (79%), state payments for dual eligibles (12%), and beneficiary premiums (9%)
The Medicare HI Trust Fund will be depleted before Social Security Old Age and Survivors, but not as quickly as disability – given the massive increase in disabled beneficiaries over the last three and a half years. Trustees project that Medicare costs will grow substantially from ~ 3.7% of GDP in 2011 to 5.7% by 2035, and to 6.7% in 2086. Parts B and D are not advance funded. The Part A / HI projected 75-year actuarial deficit is 1.35 percent of taxable payroll, up from 0.79 percent projected in 2011. So, to fill the gap in Part A (forget about funding Part B and Part D), you would need a 47% increase (1.35/2.9).
Given the expected new tax burdens after expiration of the EGTRRA marginal rates, not sure a surcharge (such as lifting the wage base limit comparable to Congress’ actions in 1994) makes a lot of sense – from any perspective.
LikeLike
Good point on the tax base used to supposedly make up the lost funding as a result of the tax holiday. In the short term though it’s just adding to the deficit.
LikeLike
I agree with raising the cap on SSI, I know guys that quit paying into the plan in May.
LikeLike
They may quit paying Mike, but their benefits stops accruing at that point as well. Even Roosevelt did not envision Social Security operating as a welfare arrangement. Keep in mind too there already is no cap on the Medicare payroll tax.
LikeLike