CRFB comments on the one tenth percent/year increase

A response to Dale Coberly’s tax increase proposal summarized here:

i have been saying for some years now that a one tenth of one percent per year increase in the payroll tax for EACH the employer and the employee would entirely pay for the “actuarial deficit” and would fund Social Security out into the infinite horizon.   (See more at: http://angrybearblog.strategydemo.com/2014/01/getting-the-facts-right-on-social-security-crfb-tries-again.html#sthash.2bEdj725.dpuf)

by CRFB

As we continue to debate how to best strengthening social security, we’d first like to thank Dale Coberly, Dan Crawford, and others at Angry Bear for agreeing to engage on this important issue.

Coberly’s short response to today’s post makes one assertion we disagree with and one we mostly agree with.

Coberly asserts we rely on other parts of the “Peterson machine” to support our facts. In fact, almost all the sources we cite are official government sources, including the Congressional Budget Office, the Government Accountability Office, the President’s own Office of a Management and Budget, the Social Security Administration, and the Social Security Trustees — whose job it is to provide Congress and the public with information on the financial condition of the Social Security trust fund.

With regards to Coberly’s proposed tax increase, we more or less agree. Since Coberly cited combined payroll tax numbers in the rest of his blogs, we assumed his proposal to raise the payroll tax rate by 0.1 percent per year was on a combined basis. If instead we raised the payroll tax rate by 0.1 percent each for employers and employees — 0.2. total — it would raise a lot more than we assumed in our post.

By our math, raising the payroll tax 0.2 percent per year over 20 years (a total of 4 percent, 2 on the employer and 2 on the employee) would more than achieve solvency over the next 75 years and close 80% of the program’s gap in the 75th year.

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Note this tax increase would not be insignificant; it would mean raising payroll tax rates by nearly one third for all workers regardless of income. There are questions to consider about what a broad based tax increase of this magnitude would mean for our ability to raise revenues to meet other needs and fund other priorities and whether relying on the revenues generated by a payroll tax increase to maintain 100% of promised Social Security benefits for all beneficiaries reflects the best use of resources. But we appreciate this important contribution to the debate and certainly believe the payroll tax rate should be on the table for discussion.