Mar 14, 2014

No, It's Not The Same Thing, You Ninny!

     Last week, Phillip Swagel wrote a piece in his Economix column in the New York Times saying that there should be no problem getting an agreement to rescue Social Security from long term doom. Liberals want to increase benefits for the poor. Conservatives are willing to increase benefits for the poor as long as benefits for the wealthy are reduced. So, hey, no problem, let's just do what the conservatives want and everybody will be happy. The column was so silly in my estimation that I didn't bother to link it here.
     Swagel writes this week to say that he just can't understand why people don't like his proposal. He notes that liberals seem to like eliminating the cap on earnings covered by the FICA tax as a solution to long term Social Security funding but, somehow, he just doesn't like that. He blows off the concerns of liberals that cutting benefits for the wealthy would undermine public support for Social Security as something that just doesn't interest an economist like him. Really? I thought that economists realized that politics was an inherent part of economic policy. More important, Swagel blows off the idea of lifting the FICA cap since as far as he's concerned lowering benefits for the wealthy would have the same "lifetime" effect as raising the cap. That notion is ridiculous. Lowering Social Security benefits for the wealthy would have little effect on the wealthy, the 1% and above, since Social Security benefits will never be more than a tiny percent of their retirement income. Lifting the FICA cap, however, would have a significant effect on the 1% since the FICA tax would cover all of their salary income. In any case, there's no way of balancing the books long term by cutting benefits for just the wealthy. The cuts would have to extend way down the ladder, especially if you're increasing benefits for the poor. Dramatic benefits cuts are politically impossible, no matter who's in power in Washington. Lifting the FICA cap is impossible only so long as Republicans control the White House, the Senate or the House of Representatives and that's not going to last forever.
     Really, Swagel, if raising the FICA cap and cutting benefits for the wealthy have the same "lifetime" effect, what's your problem with raising the FICA cap? You never explain this.

8 comments:

Anonymous said...

I'm by no means wealthy, but if you remove the FICA cap, wouldn't you in turn remove the benefit cap? Otherwise, you're taking money from the wealthy to give to the poor with no benefit to the ones paying the higher tax. Sounds more like a penalty for being wealthy or successful.

Anonymous said...

While calculations for payment amounts do favor the lower earner, Social Security is not a needs based program. It is an earned benefit that has as its base an actuarial foundation. This shifted when benefits became taxable income. That change reduced the net amount of an earned and previously untaxed benefit under cover of tax law, hurting many in the middle as well as the "wealthy".

Is the only acceptable path to be fair to the poor is from each according to their ability and to each according to their need?

Anonymous said...

I'm against all cuts to Social Security, and would prefer increases, if that were feasible politically. I also would prefer a large increase in the cap (with an increase in benefits using the current formula, it would still raise a lot of money), but politically that would be a problem. Therefore, I think a reasonable compromise is to raise the cap enough to make up for the drop in Social Security revenue as income becomes more unequal, and to raise the payroll tax rate if and when necessary to maintain benefits.

Anonymous said...

Only a small percentage of income people in the top 1% of the income distrubution is from wages, so I'm not sure elimintating the FICA cap is going to "significant effect" them. They have options. Giving them more incentives to use those options could actually reduce the portions of their income subject to FICA taxes. Some people estmiate that only 42% of the top 1 percent's income is from wages and salaries. http://www.scholarsstrategynetwork.org/sites/default/files/ssn_basic_facts_hicks_on_the_very_rich.pdf

Anonymous said...

12:15

I'm surprised the percentage is that high. Very few people earn that much money via a paycheck or from earnings their business generates. The vast majority of the uber, uber wealthy (I'm now talking like top 0.1%--the real rich) get a lot of income from capital gains and other passive investment gains. That's why the average effective federal income tax rate for these people is in the teens when income tax is 38 percent for income above a few hundred K. Well, that and the fact that they get so many other tax deductions/exemptions/etc. that simply will never apply to and benefit we mere mortals.

Anonymous said...

Always amazes me that some people don't understand the difference between wealth and high-income. They are not synonymous. Lots of high income employees blow through their paycheck by living beyond their means. But they could pay a lot more in FICA taxes. The wealthy who have trust funds, real estate, stock portfolios may not work at all and pay zero in FICA taxes.

Anonymous said...

@8:42 - EXACTLY. This kind of policy is window dressing.

Anonymous said...

bingo. i'll beat this dead horse yet again--it is not so much income that needs to be taxed (at least how "income" is currently defined in the IRC) more. To get at the inequality, the undue influence of money in politics and everywhere else, to raise pay for workers, to get out from under our national debt--we need to start taxing the accumulated wealth that was grown and continues to grow precisely because it is not income and is taxed, if at all, at rates less than half of what it would be taxed at if it had come via a paycheck. we have a wealth inequality problem much more than we have an income one (again, insofar as income is defined. Personally, I consider most of that other stuff income since it looks like income, quacks like income, and smells like income--these investments aren't being held super long term for retirment like your and my 401(k)/403(b)/IRAs, they're being used to generate what is essentially income for the individuals involved. They just get to define what income is because they control the writing of the IRC).