I’ve been hearing for years about how much trouble Social Security is in, and how pretty soon there won’t be enough money left in the trust fund to pay everyone’s pensions in full, and how we’ll have to raise taxes or cut benefits. That’s almost entirely false.
The Greenspan commission that restructured Social Security back in 1983 got almost everything right (which is why we haven’t needed to change Social Security tax rates, diddle around with the cost of living adjustments, nor change the age at which people retire for forty years). The one thing they got wrong?
Back then, about 90 percent of all wages were subject to Social Security payroll taxes. Today, that’s dropped to around 82.6 percent as more income has shifted above the taxable maximum.
Source: Actually, Social Security Nailed It In 1983
The most common suggestion for “fixing” Social Security is to get rid of the ceiling on the amount of income subject to the tax, but that’s the wrong way to think about it. Getting rid of the ceiling would decouple the size of the eventual pension from the size of the income that earned it, which would give conservatives yet another hook for criticizing the program.
The right fix is to boost incomes of those at the bottom, so that once again 90% of all wages are under the Social Security tax ceiling.
Making sure that lower-income people earn enough money to live on will fix Social Security as a side-effect.
Pretty cool, eh?
