As the next election gets closer we will hear more about “fixing” Social Security. Fixing should mean making the program permanently sustainable.
To make Social Security permanently sustainable we need to make changes now that make the program 100% solvent for the next 75 years and amend the law so that automatic changes to revenue are made in the future as needed to retain that solvency.
Proposals to increase the wages that are taxed do not fix Social Security. Here are three alternatives. The most talked about being taxing wages above $400,000. The funds run out sooner than shown below with any changes that increase benefits as has also been proposed.
TAX ALL WAGES
Social Security remains insolvent. The trust funds will run out in 2059 at which point all beneficiaries will face a sudden 12% benefit cut.
Tax 90% OF WAGES
Social Security remains insolvent. The trust funds will run out in 2039 at which point all beneficiaries will face a sudden 15% benefit cut.
TAXE WAGES ABOVE $400,000
Security remains insolvent. The trust funds will run out in 2044 at which point all beneficiaries will face a sudden 11% benefit cut.
The reality is that in the absence of significant cuts in benefits, making and keeping Social Security solvent requires more revenue in the form of higher tax rates on wages or other new taxes.
Taxes should be proportional to wages and benefits meaning no one is taxed without receiving some benefit for those taxes although as is the case now, the benefits should be based on a formula reflecting income levels. Simply put, lower income beneficiary receive a bigger bang for their buck. That’s what the benefit formula does today.
QUINNSCOMMENTARY 
The above estimates are based on the assumption that 15% portion of benefit formula applies to all the extra wages which Increases the maximum benefit. But we should also add a 3rd fixed break point to the benefit calculation above for FICA tax all earned compensation which there is 0% added to one’s benefit until the 2nd break point inflates to the point it eliminates the 15% benefit adder leaving only the lower 2 parts of the benefit formula. We should also increase FRA every 20 years group (1980-1999 FRA 68, 2000-2019 FRA 69, 2020+ FRA 70) until we eliminate the delayed retirement credits and FRA reaches 70. If these suggestions are not enough, then and only then increase the 6.2% tax. Applying the 6.2% to income above the current maximum is not increasing the 6.2% tax, but does increase the collect taxes.
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Don’t forget the employer also pays 6.2 %.
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I don’t think there should be any point where taxed income should not be counted in the SS formula although less percentage as income rises. I do think that anyone retiring at FRA with a maximum benefit should not receive a COLA for at least five years. This on the basis their income was sufficient to save beyond SS.
The reality is that age 70 is the FRA and earlier retirement losses benefits. Presenting as if one is gaining benefit by waiting is very misleading.
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