To Lift or Not to Lift - That is the Question

There is one campaign issue that for me at least, is just not understood and that is the debate on whether or not to lift the payroll tax cap on FICA taxes above current Social Security Wage Base, $97,000.

John Miller is professor of economics at Wheaton College said in Dollars and Sense:

Lifting the cap on Social Security taxes would raise a significant amount of revenue: $1.3 trillion dollars over ten years according to the libertarian Cato Institute, and $124 billon a year according to the left-of-center Citizens for Tax Justice. Long term, lifting the payroll tax cap would just about cover the shortfall Social Security will face if economic growth slows to a snail's pace in the decades ahead, as forecast by the Social Security Administration (SSA). (See The Social Security Administration's Cracked Crystal Ball, and Social Security Isn't Broken for critiques of the SSA's forecasts.) According to Stephen Goss, the SSA's chief actuary, lifting the cap while giving commensurate benefit hikes to high-income taxpayers once they retire would cover 93% of the SSA's projected shortfall in Social Security revenues over the next 75 years. Removing the cap without raising those benefits would actually produce a surplus in the system over the same period—even if the economy creeps along as the SSA predicts it will

tax increase by eliminating the FICA cap

The above graph is from Citizens for Tax Justice paper An Analysis of Eliminating the Cap on Earnings Subject to the Social Security Tax & Related Issues(pdf).

The Economic Policy Institute agrees that the cap should be lifted.

Ok, so at this point you're probably like me saying why the hell is Clinton backing rich people and let's go ahead and do this thing.

Ah, but wait, it's not so clear cut! Again from Citizens for Tax Justice:

One potentially big problem with any of these approaches is that they would further weaken the linkage between Social Security taxes paid and Social Security benefits received. Many argue that by doing so, the widespread public and political support for Social Security as an earned benefit could be endangered.

Another issue is the minute social security is made solvent or has a surplus, Congress or another administration likes to spend it on other purposes. How can we forget Al Gore's lock box?

So, maybe Clinton isn't siding with the rich so much after all, instead trying to head off at the pass an attack on the social security system overall as being plain unfair. That's what the Citizens for Tax Justice are warning about in the above paper and we know the privatization agenda is incredibly strong.

Here's what Alternet said:

Now, there is a legitimate progressive objection to Obama's discussion of fixing Social Security by adjusting the cap: any talk of reforming Social Security inevitably plays into the hands of those out to privatize it by trumping up a phony crisis. But that hardly seems to be the point of the Clinton campaign flyer.

Too bad it wasn't. Clinton gets it: in the past she herself has warned that acting as if Social Security is in crisis is "a Republican trap." Yet last October, an Associated Press reporter overhead her telling an Iowa voter that she would consider lifting the cap on payroll taxes as long as wages between $97,500 and $200,000 remained exempt—precisely the proposal she derides in the Nevada flyer

Clinton may have read the opposition research. The NCPA, the Heritage Foundation is certainly blasting the lift of the social security tax cap and we know about the CATO Institute's campaign to privatize social security.

Another overview from CNN Money and another thoughtful blogger.

I hope that helps others. I certainly didn't understand the Pros and Cons as well as the various ways to make social security solvent and maintain a Progressive national pension plan with all of the election insanity going on.

If you read any of the links in this post, the CTJ paper is the most thorough and objective.

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Comments

Great post...

will link to it ASAP. This is the sort of clear factual analysis folks need to make good decisions.

Keep it up!

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