Tax the Rich to Save Social Security?

Categories : Financial, News
February 7, 2024

Social Security is failing, due to an imbalance between the inflow of funds relative to mandatory outflows for monthly benefits. Simple logic dictates that step one in curing an insolvency problem would NOT involve reducing incoming dollars. Yet, a current proposed Bill does exactly that. Or so it seems.

Most Americans are unaware that Social Security funding currently consists of several components. Everyone who ever had a job knows about mandatory Payroll Withholding, but that is just the beginning. Income Tax on benefits paid out are also turned over to the Social Security Administration. Occasionally, direct deposits are made by Congress, usually due to large, mandated changes in Social Security rules. Above minimum income limits monthly benefits are partially (either 50% or 85%) taxed at marginal income tax rates. These funds are all allocated to Social Security, separated from General Revenues, which are primarily individual and corporate Income Taxes.

Dubbed “You Earned It, You Keep It,” the current proposal would seemingly eliminate one primary source of Trust Fund revenue by eliminating income tax on all monthly benefits paid out. Originally promised by the designers of the Social Security System, it seems logical. But look under the hood.

Saving a gigantic system by starving it for revenue seems superfluous. Is that really what “You Earned It” means? Unsurprisingly, no. It is merely a smokescreen designed to sell the proposal to Americans who are being kept in the dark. Reading beneath the headlines, we find that revenue loss from the taxation of benefits is quietly replaced from General Revenues. The lower-income half of Americans do not pay into the General Fund. The result? Tax the Rich.

But that’s not all. To justify the claim of extending the solvency of the current system, mandatory payroll taxes (FICA Withholding) would be applied to all earned income. The 2024 income limit is $168,800, after which no more FICA Withholding applies. Again, Tax the Rich.

Nowhere in the “You Earned It” proposal is there any mention of raising the eligibility age for younger workers. Increasing longevity of recipients is the cause of the impending shortfall. This very situation was present in the early 1980s, when President Reagan and Congress raised the Full Retirement Age from 65 to 67, phased in gradually over decades. That simple process increased Social Security solvency by about 75 years while giving young workers ample planning time.

With an eye to long-term solutions, we can see from “You Earned It” that we must be diligent, as Congress is willing to sneak in provisions that would simply apply the worn-out pursuit of letting The Rich pay for everything. It won’t work, because it can’t ever work. When will they learn?

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