Bruce K the answer to #1 is not straightforward at all. It depends entirely on whether ‘No’ entails a proposal to address the remaining crisis by some sort of cuts to the benefits formua or some attempt to address that crisis via the revenue formula. Both Biggs and Coberly would answer ‘No’ but give entirely different alternatives.
But even for those who would agree to Yes on #1 the question doesn’t reduce to ‘how much’. Because before addressing that question it is imperative to address the question of ‘covered income’. Because the answers vary greatly depending on whether a cap increase just applies to current categories of ‘covered income’ or roughly wages and equivalents, or expands that to current income categories that are not ‘covered’ which is to say most returns on capital. And that in turn raises some serious questions about compliance costs. Because raising the cap to a level that captures 90% of current categories of covered income can be accomplished at very little additional cost, whereas any effort to expand FICA to uncovered income like capital gains involves all kinds of costs. In the former case we just tell payroll departments to change a formula for FICA deductions, in the latter we have to pursue those additional covered income via after the fact IRS tax returns.
That is the followups to either Yes or No on #1 are a lot more complicated than some would think. Most emphatically including a bunch of progressives enthusiastially committed to ‘Just Scrap the Cap’.
For example Coberly is a firm No on #1 and I am a qualified No. But in neither case because we are opposed to taxing the wealthy on net.
I think that the payroll tax should be limited to earned income (not unearned income).
To change the cap also means changing the formula for benefits. So I see the “scrap the cap” argument falling flat.
An approach that might be feasible is that the cap is increased by an amount that is greater than the COLA increase. (double?) This would change the cap more slowly. But if that is the result, it will result in very little revenue increase for SS.
If one totally scrapped the cap (and changed the benefit formula) it would generate an additional $125B for 2014. That would be close to what is needed. (What is needed is about 1% of GDP – $170B in 2014 dollars).
For a guy like Lebron James, who made $50m in 2012, it would mean an extra tax bite of $6.2m.
I think the cap is not the way to fix SS, but because the Progressives love this approach it probably has a chance of happening. I do think that any big change in the cap (and that formula) will be the death of SS.
One of the alternatives to address the Social Security imbalance is to raise the cap on earnings that are subject to payroll taxes.
For 2013 the cap is $113,700. The cap will go up by 1.5% in 2014. Income above those levels is not subject to SS taxes.
My questions:
1) Should the cap be raised?
2) If so, by how much?
The answer to #1 is a straightforward Yes or No. The answer to #2 is a range of answers.
Should the cap be (example) doubled, or should there be no cap at all?
Bruce K the answer to #1 is not straightforward at all. It depends entirely on whether ‘No’ entails a proposal to address the remaining crisis by some sort of cuts to the benefits formua or some attempt to address that crisis via the revenue formula. Both Biggs and Coberly would answer ‘No’ but give entirely different alternatives.
But even for those who would agree to Yes on #1 the question doesn’t reduce to ‘how much’. Because before addressing that question it is imperative to address the question of ‘covered income’. Because the answers vary greatly depending on whether a cap increase just applies to current categories of ‘covered income’ or roughly wages and equivalents, or expands that to current income categories that are not ‘covered’ which is to say most returns on capital. And that in turn raises some serious questions about compliance costs. Because raising the cap to a level that captures 90% of current categories of covered income can be accomplished at very little additional cost, whereas any effort to expand FICA to uncovered income like capital gains involves all kinds of costs. In the former case we just tell payroll departments to change a formula for FICA deductions, in the latter we have to pursue those additional covered income via after the fact IRS tax returns.
That is the followups to either Yes or No on #1 are a lot more complicated than some would think. Most emphatically including a bunch of progressives enthusiastially committed to ‘Just Scrap the Cap’.
For example Coberly is a firm No on #1 and I am a qualified No. But in neither case because we are opposed to taxing the wealthy on net.
I know this wasn’t entirely helpful.
Well, thanks for this non-answer.
I think that the payroll tax should be limited to earned income (not unearned income).
To change the cap also means changing the formula for benefits. So I see the “scrap the cap” argument falling flat.
An approach that might be feasible is that the cap is increased by an amount that is greater than the COLA increase. (double?) This would change the cap more slowly. But if that is the result, it will result in very little revenue increase for SS.
If one totally scrapped the cap (and changed the benefit formula) it would generate an additional $125B for 2014. That would be close to what is needed. (What is needed is about 1% of GDP – $170B in 2014 dollars).
For a guy like Lebron James, who made $50m in 2012, it would mean an extra tax bite of $6.2m.
I think the cap is not the way to fix SS, but because the Progressives love this approach it probably has a chance of happening. I do think that any big change in the cap (and that formula) will be the death of SS.