Seniors and chained cpi
by Linda Beale
Robert Reich: Chained CPI Makes No Sense For Seniors
With MoveOn.org, Robert Reich has produced a new video on the proposed change to Social Security that would REDUCE BENEFITS for seniors and wreak the most havoc on the most vulnerable. As he notes in the video, the proposed change–which the Obama Administration has supported, presumably as a way to win favor with the radical right in the GOP that wants to significantly reduce Social Security and Medicare benefits–isn’t necessary since Social Security isn’t hurting for cash, won’t be fair to elderly recipients who already face increased medical costs and decreased income to pay for them, and won’t do a thing about the deficit (which is the wrong focus, anyway).
Reich gives me the idea of “chained ceiling” on FICA taxes. If people get a greater (and greater) share of overall income (called “inequality) then they should be taxed on more (and more) of that income — a much more humane way of factoring in substitute shifting.
I would not add tax just above today’s cutoff of $113,700 (roughly 90 percentile income) because the people from 90-97 percentile usually just hold onto the same (level) level of income share they have had since the 60s. I would add FICA taxation beginning somewhere above 97 percentile. Baseball players, CEOs and TV anchors surely are substituting much more expensive goods since the 60s. You can make the system solvent by paying less out to those who substitute down (painfully!) or by taxing more from those who substitute up (obscenely!).
PS. When we give old folks less money because they were forced to substitute cheaper items (more rice and less pork) — then — the next year they will be forced to substitute even cheaper items which will trigger even deeper benefit cuts — etc.
Current FICA hits around the 83% of income rate not “roughly 90%” which was however the approximate level where FICA cut out before income I equality started biting so hard. Indeed a popular SS policy option is precisely an increase from 83% to 90% as compared to the Obama/Biden surcharge of 2-4% on incomes over $250k. Something that comes pretty close to Denis’ 97% proposal.
The problem with both proposals is that the current definition of “covered income” for FICA is “wages and wage equivalents” and DOES NOT include returns on capital. That is cap increase proposals that don’t change the incidence serve to give the billionaire vulture rentier class a free pass along with certain of their minions who can restructure compensation to things like restricted stock grants while slamming the professional class and entertainers (sports and movies and TV) who make large incomes over often too short careers.
On the other hand expanding FICA to capital income creates all kinds of reporting and so enforcement costs absent from the current system plus imposing other political costs.
Now if the cost of fixing Social Security under existing cap formulae via phased in increases in FICA were truly too onerous for workers to bear then screwing around with the cap formula or changing the incidence of taxation might be regrettable but necessary. But it isn’t. As some Northwesterner whose name escapes me has pointed out on a daily or better basis here for some four years now we are talking about 80 cents a week for the average worker (depending on how you split 0.1% of FICA increase per effected year).
Social Security needs a tune-up. Yet both opponents and would be supporters are debating how and whether to change out the injection system. For Gods Sake leave “New and Improved” to Mad Men. The old Social Security Betsy (or Frances?) just needs a couple more points of octane in its fuel. (Maybe we could call it Ethyl?)
And for those mystified about the ‘Betsy’ and ”Ethyl’ references all I can say is “Get off my lawn! Before I let you have one from my trusty old Roscoe! Mumble, kids!, mumble”
Denis Drew
I’m all for taxing the rich to pay for defense, and offense, and bank bailouts, and “stimulus” after they tanked the economy, and even to pay for regulating the banks when the rich figure out the banks are screwing them too.
But I am not for taxing the rich to pay for my groceries. Not now, not when I am sixty four.
We may come to a time when we need to live on welfare, or the charity of the rich. We won’t like it when we do.
I’d rather pay my 80 cents.
By the way,
there is nothing magic about setting the tax to “tax 90% of total income (from wages)”
that was jut the level which at one time came out when the tax was set so that it provided a “fair return” or a fair price for the value of the insurance received.
if you and your fellow workers agree to insure each other against ending up old and too poor to retire, you might set a reasonable schedule of taxes based on wages and benefits based on taxes.
if after time goes by, some peoples wages have grown faster than others, this does not by itself mean they should pay more taxes… IF they are content with the benefit that comes from the taxes they do pay.
once you start taxing them more than they get in benefits… counting the “interest” on the one hand, and the insurance value on the other… you have entered “welfare as we knew it” territory. This is a dangerous place to enter.
The problem with Social Security is NOT that the rich have gotten richer. The problem is that first, you are going to be living longer, and second, your wages are not growing fast enough to provide the “interest” that used to provide a reasonable benefit at a lower tax level.
When you start asking the rich to pay for your lunch… and you are not so poor you have no choice… you are being as greedy as you complain that they are.
In any case, if you know they are going to destroy Social Security because they think they are going to have to pay for it, and you can save it by paying an extra eighty cents per week… it would be pretty damn stupid to stand there and insist they pay for it.
Please note, I have been banned from the oh so polite company of the people who claim to worry about Social Security professionally because I am “insensitive” because I say things like “it would be pretty damn stupid to stand there and insist the rich pay for it”. But I am just one of those poor working people they claim to be so concerned about. So I can’t be polite while they are helping destroy Social Security because they are too damn stupid to let us pay for it ourselves.
“I’d rather pay my 80 cents.”
Where are you getting this figure?
$40,000/yr = approx $800/week (assume 2 weeks unpaid leave and it’s exact)
0.1% increase in FICA = 80 cents a week
Per CBOs 2010 Social Security Policy Options a 0.1% increase per year for 20 years backfills the entire Acturial gap, I.e. delivers 100% of the Scheduled Benefit.
Note that 80 cents is either the self-employed number or the number that assumes employer share comes directly from compensation, that is it puts the entire 0.1% on the employee. If you assume a 50/50 split the initial effect on take home is half of that. Also the $40k number is per worker and not per household, a household averaging $50k with 2 earners would pay a $1 a week, say if both were minimum wage. And two it is 80 cents per week per each of those 20 years in 2010 dollars. Inflation adds some pennies onto that.
But the number is solid. Me I used to use 50 cents a week to express the same thing by assuming $50k household and a 0.05/0.05 employer/employee split, but it is all a matter of phasing in needed changes at 0.1% per year under assumptions that have Real Wage growing by right at 1% per year. Using a slightly different path Dean Baker puts the needed extra tax at 6% of average Real Wage increase over the time periods involved. For no change in retirement age and 100% of scheduled benefit.
Juris debtor
Bruce is essentially correct. I got the figure just by trial and error in a spread sheet that reproduced the Trustees calculations of future income and costs to Social Security… getting their 8 Trillion dollar “actuarial insolvency.” Then I replaced the tax with a tax rate that grew one tenth of one percent whenever the original data would have projected “short term actuarial insolvency’ (that is the Trust Fund falling below 100% of a year’s benefits within ten years of the projection). I can send you the spread sheet. it may need some clarification as it is not particularly ‘user friendly.”
i like to point out that the “80 cents” is “present value”, but only to those who think they are smarter than me when they say that the “9 Trillion” is present value. You see, they… people with ph.d.’s… know that it’s present value, and they know that means something. they just don’t know what.
if i thought anyone was still listening, i’d re-publish the whole argument. but what i find is that most people don’t want to think about it at all. some are sure that SS is a ponzi scheme. others are sure that cosmic justice requires the rich to pay for it. and then there are those who say it’s all an “academic kerfuffle.”