Some politicians, economists and pundits want to change Social Security funding by higher taxes on a few, wealth taxes or simply from general revenue.
Those are bad ideas.
There are good reasons to fund Social Security with dedicated payroll taxes and keep the program out of the general budget and related political drama.
The program needs a steady untouchable guaranteed income stream.
The problem is not the funding, but the political lack of courage to adjust the payroll taxes as needed to keep the program solvent.
Adjustments should be made annually and automatically based on actuarial projections without political interference. That means the tax rate and taxable wages could go up or down.
Yes, Franklin D. Roosevelt absolutely intended Social Security to be funded by payroll taxes. There are a couple of reasons to support this:
- Historical Evidence: The Social Security Act of 1935 established the program, and it included a mandatory payroll tax from the beginning. There’s no record of FDR proposing a voluntary system.
- Roosevelt’s Quote: A famous quote attributed to FDR highlights his thinking. He reportedly said he used payroll taxes “so no damn politician can ever scrap my social security program.” This suggests he saw the tax as a way to create a vested interest in the program for workers. [While the exact wording may be debated, historians believe FDR expressed this sentiment]
So, while there may be myths about Social Security being voluntary, FDR designed it with mandatory payroll taxes as a core element.
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Thinking outside the box a bipartisan 15 members of Congress would like to invest$1.5 trillion into an investment fund separate from the SS Trust Fund–any dividends would be reinvested and kept in escrow for 70-years. It is already in force in pension funds worldwide and rescued the Federal Railroad Retirement System.
New Jersey Transit along with other rail companies are using it and benefits are bountiful.
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Only a partial answer, but not enough. Currently, the Social Security trust fund is invested entirely in non-marketable government bonds. This option partially investing in the markets would allow the Social Security Administration to replace some of these government bonds with corporate bonds, stocks, and other investment instruments. This option would increase the expected annual return of the trust fund by roughly 8% under our illustrative assumptions, but at the cost of increasing the risk and volitility associated with that return and requring the federal government to issue additional debt to the public to swap for private stocks and bonds.
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The funding gets plenty of attention because the Pols are reluctant to raise taxes on the bottom half of the economic scale. The payroll tax is a big hit to the lower wage earners and the crowd making bank in the upper ranks. That’s why Bernie Sanders and others come in with ideas of raising money from the top end. Then there are some who would rather cut benefits than raise tax income. It was bound to happen when the number of workers kept shrinking compared to the number of recipients.
I’ve never believed we needed to hang onto something FDR set up just because. No one else has either since the program has been modified many times since the 1930s. More groups of workers have been included and more groups of recipients have been added. That being said, the program is too important at present to be cut loose so the funding will have to be found somehow. Raising the tax yearly wouldn’t fly and SSA couldn’t get timely numbers together anyway. The government doesn’t run on that tight of a schedule.
Our best hope is that Congress will stop fiddling with TikTok and toting up how many dollars to send to foreign wars long enough to come up with a palatable plan.
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