Bernie is wrong on Social Security
I like Bernie Sanders for many reasons, but this isn’t one of them:
“As a result of those challenges, Sanders wants to see more Democrats vocally get behind measures like . . . removing the cap on Social Security taxation so the wealthy pay a full share of their income into the program.”
This is a mistake. SS benefits are capped like taxes, so if you lift the cap on taxes and don’t lift the cap on benefits, SS becomes welfare instead of insurance.
Look, SS is and has always been retirement insurance, not an investment plan. The wealthy don’t need SS, so it makes sense to cap benefits. Indeed, up to 85% of SS benefits are subject to income tax if you make enough income beyond SS. If you don’t cap taxes, SS ceases to be insurance and becomes welfare paid for by the wealthy. When that happens, it becomes–like welfare–a political football.
FDR had it right. SS is paid for by the workers for the workers. It is funded separately from the general fund. Let’s keep it the way FDR designed it and protect it for the most vulnerable in our society. Knock it off, Bernie!
Bernie Sanders supports Kamala Harris
Joel:
I am sure Dale Coberly or Arne will weigh in on this also. Neither should disagree with your comments. Indeed, it is very similar to what Dale has commented on with his Northwest Plan.
Dale, Bruce Webb, and Arne were major supporters of Social Security plus some very small and mostly unnoticeable changes . . . tweaking the rate of withholding one tenth of one percent each year for ten years. This for individuals and for businesses.
Angry Bear lost a good Bear when Bruce Webb passed from our midst.
The tweak will ensure financial stability for the next seventy-five years. It will also keep SS the people’s plan which no politician will touch.
Working in the field I was in till I was seventy paid off for myself. My wife did similar too. We are safe.
I’d agree that Senator Sanders has it wrong when he argues that the cap on Social Security should be totally lifted. However, one might consider that much has changed since FDR did pass the original Social Security legislation. Should the cap be raised to reflect the increases in income paid the highest earners in society? If we use the average or median, that dilutes what’s happened with to the wages of the large bulk of working people who have not seen their real incomes rise in 40 years. It wouldn’t uncap the Social Security level but it would better reflect what’s been allowed to happen in society since unions and other collective bargaining structures have been allowed to be eroded.
Praha
I believe SS taxing is capped at $165,000 (didn’t look it up) for taxing. Maybe lift the cap to $250,00 to 300,000? That should come close to imitating what has happened to the upper income brackets (again I am suggesting this may be more realistic) growth,
Also, allowing full benefits at 65 again (if not sooner) without reduction, would be helpful for the lower income.
@Bill,
How does raising the cap on taxes without raising the benefits commensurately not result in a welfare-like subsidy? What about the Northwest Plan?
Joel:
Inflationary salary and costs have far outstripped Social Security payments to the Trust funds. The other side of this is payments out are outstripping inputs to the SS trust funds from Social Security taxation. Two ways to accomplish a more secure Social Security is to increase the base for taxation and introduce mild increases in SS taxation which the Northwest plan does.
Arne has a good response.
I notice that Trump has come out for no tax on Social Security. Like his previous no tax on tips, will the Harris campaign also now come out for no tax on Social Security.
Do Angry Bear readers have any thoughts on this? It seems like a pretty powerful message to seniors.
@Jim,
I’ll have a post up tomorrow based on this:
Joel,
Excellent, I look forward to your analysis.
Tax collected on social security benefits goes into the SS trust fund.
Cutting out the “tax” reduces cash paid into the trust fund while helping the high income retiree.
However, this cash collected from retires through the IRS 1040 goes toward SS not being separately funded? In this view Trump is more “traditional” toward SS.
It should not be a very powerful message to seniors. Since over half of seniors get over half of their income from Social Security, they already pay no taxes on SS.
That was an oversimplification, but someone (single) receiving the average $1778 per month benefit could receive another $1653 from other sources without owing taxes on SS benefits.
@Arne,
Yep. Ending the taxation of SS benefits mainly helps the wealthy and mainly harms SS and Medicare. Which is why Trump supports it.
You can read how we got to the taxation we have here.
There is a reason that the income level at which taxation starts is not indexed. You might not agree with it, but you should read all the way down before developing your opinion.
@Arne,
Thanks for this link. I didn’t know this detailed history. I will need to read it closely.
I see that a lot of the 85% reference is attributed to the employer share, which is a cost to them and not subject to taxes for the employer. Is there a tax “break” on SS benefits deriving from self-employment contributions, where this is all coming from the individual, or is half their contribution also shielded from income tax back when it is paid?
Just curious if there ever was a model of future SS finances that did not project a major shortfall in the 2030 to 2040 period. If so, how long ago was that model and generally what are the misses in that model that now are revealed? As I think about it, either there always was going to be a problem, or some elements were badly off the model, but I can’t figure out how income above the cap has a role in the miss. Raising the cap would increase revenue, but the current cap is not where the model went off target I think.
I wonder if the amount of benefit correlates with longevity in a way modelers did not foresee? Like the higher your benefit the likelier you are pretty healthy and getting better health care. ‘We have the predicted number of 67 year-olds and we send them the predicted aggregate benefit. We have the predicted number of 72 year-olds and we send them more than we predicted. We have the predicted number of 77 year-olds and we send them much more than we predicted.’ Is this possible?
Yep, the problem is called the economy and also Congress.
The 6.2% has not changed since 1990. Most f the issue today could have been prevented if tiny tweaks of 1 tenth of one percent were made every 2 or 3 years since then. We would not be sitting here talking. Political interests always want control of the destiny and this is one way to have it. Create the issues by doing nothing when a foreseeable issue is discovered.
Social Security Rates