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Friday, March 25, 2005

Social Security and the Lazarus Cure

Reporter David Lazarus talks to Steve Goss, the Social Security Administration's chief actuary, about an Easy fix for Social Security:
I asked Goss what he thought about an appropriate remedy, but, like just about everyone else in Washington, he didn't want to be the first to bite the bullet. Besides, he was quick to emphasize that he and his team are analysts, not policy-makers.

'We do not espouse that there is a better or worse solution to the problems that we face here,' Goss said. 'That's the job of elected officials.'

Well, what if we tried something as simple as doing away with the current cap on taxable earnings? As it stands, workers pay a 6.2 percent tax on everything they make up to $90,000 (their employers pay an equal amount).

The upshot is that someone making $50,000 a year pays the full 6.2 percent into the Social Security system, while someone making $5 million a year pays only about 0.1 percent.

Goss may not espouse a particular solution, but he has run the numbers down his slide rule. And getting rid of the $90,000 cap would have a dramatic effect on Social Security's 75-year, $4 trillion deficit.

'It would eliminate the deficit entirely,' Goss said.

Better still, it would even leave the program with a surplus, at least until 2090 or so.

The first catch is that you couldn't hand out commensurately more in benefits to rich people just because they're paying more into the system. This would only exacerbate the problem we face now of more money leaving the program than coming in.

Some sort of means testing is required. If you're Bill Gates, after all, you're not relying on your Social Security check to get you through the winter. The money can do more good elsewhere.

The second catch is that when you do reach 2090 or so, you'll probably have to tweak the system again to replenish Social Security's coffers.

Yet that's precisely what was envisioned for the program the last time it was tinkered with, in 1983.

At regular intervals, experts decided at the time, taxes and benefits would have to be re-evaluated in light of changing demographic and economic circumstances.

In a conference call with reporters Thursday, the Treasury secretary offered a lukewarm response when asked about raising the tax cap.

'The president has never embraced that idea,' he said. 'But it's an idea out there that needs to be looked at.'

So what's the big deal? I asked Goss why axing the cap isn't on everyone's to-do list in Congress.

I already knew the answer, of course. Bidding sayonara to the cap would represent an enormous tax increase for the wealthy (and they've grown accustomed in recent years to seeing their tax burden go down, not up).

Goss didn't have to say this.(emphasis mine)

Reading this I wondered why don't more of the made for TV reporters ask these questions, then I remebered they are not going to risk having money taken out of their pockets as they'd be most likely affected by raising the tax cap.