Solvency issues never seem to go away when we discuss Social Security.  Bad press makes the news, and doom-sayers seem to always get their 10 minutes of fame before they fade into oblivion.  The state of affairs is not that bad if you ignore the tabloid press and look at the math.

The SSA program is best known for paying retirement and disability benefits.  The last time Congress rolled up its sleeves and seriously addressed the solvency issue was during the first Reagan presidency (circa 1983).  Our population has changed dramatically, the cost of living has changed, the debt has risen, …  It is past time for Congress to revisit this problem.

Here is part of the problem: Americans live longer, so retirement is being paid longer.  The tax base for the SSA program has eroded over the years, and the cost of non-fringe employee benefits (think health insurance) has risen exponentially. There is also the disability program which pays benefits as well.  In short, there is less payroll available to tax, more people to draw out benefits, and these beneficiaries tend to draw program benefits longer.  What to do?   Polling suggests that most Americans support more taxes as opposed to a cut in benefits. Here are some considerations that are being floated:

Eliminate the cap on payroll taxes:.  Currently the SSA taxes up to the first $118,500.00 of taxable income.  Eliminate this cap and more payroll is available to tax! Plus high income earners would pay more taxes. Sounds pretty simple. This also tends to eliminate what some perceive as an inequality.   Essentially this is a redistribution of wealth through taxation, which has long historical precedent.

Tax More:  Certain employee benefits are not taxed by the SSA.  Simply subject certain benefits that are currently exempt to the SSA tax, and there is more income paid to the SSA trust fund.  Think something like a SSA tax on employer sponsored health insurance, life insurance, disability insurance, flex accounts, … My guess is that workers will hate this idea.

Just increase the tax rate:   Simple and easy- raise the tax rate on people paying the tax.  Very democratic- every wage earner feels the pain, and most probably the matching taxes paid by employers would rise as well.  A large demographic of our population is hit with this, and a very modest rate increase (think .3% to .5%) would go a long way towards refilling the SSA coffers.  Sadly, some of our most vulnerable residents would feel this more than others (think low income earners living month to month, where every dollar counts)

Some would even consider a combination: a minor rate increase, plus a very modest tax on some percentage of employee benefits, and raise the cap on payroll to maybe $150,000.00.  This affects a large part of the workforce and spreads the pain of taxes, and addresses what some perceive as inequality benefiting high wage earners.

Your thoughts and comments….