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It seems that there is a simple, fair and just solution to the Social Security problem, a solution that the experts can't seem to come up with for a system that is predicted to run out of reserve funds by the early 2030's. The simple solution is to levy the 6.2% social security tax on all personal income, not just on earned income up to the current earned income cap of around $184,000, but all earned income above the current cap, as well as all unearned income (i.e. investment income) as well. But do not require employers to add their 6.2% of all earned income above the current cap. If a person with a total income of $30,000 comprised entirely of earned income, can afford to pay 6.2% of that income into a system which will probably not pay them enough retirement income to make ends meet, why shouldn't a person with a total income of $5 million, most of which may be unearned, be able to afford a 6.2% levy on all of that income, even if they get almost nothing in return from social security when they retire, because they would most probably still have a ton of money in investments they were able to make over the years? I would think that there would be plenty of money to fund Social Security if this simple solution were undertaken, and no one would suffer financial pain in doing so.
Under the above suggested SS taxation system, the first $50,000 or so of investment income could be exempt so that the average person does not have to pay the 6.2% tax on such things as savings accounts and IRA distributions.
In order to allow the economy to adjust to this change, the change should be made over a number of years as follows: In the first year, apply a 1% Social Security tax on all newly eligible personal income (i.e. earned income above the cap and all non-exempted unearned income). Each year thereafter, raise that tax one additional percentage point, until it reaches 6%. Once the 6% rate is reached on all previously non taxed income, leave the employer rate at 6.2% for employees' earned income below the cap. When each year's Social Security is paid out of that year's collected funds, the $3 trillion that the federal government now owes to the social security fund, because it has borrowed that money, would be null and void, reducing the National debt by $3 trillion. I would be the first to admit that my numbers may well be off, but something close to the above plan can certainly be worked out when the correct numbers are properly considered.
Upon reaching the designated retirement age, each person should receive the same social security base amount as everyone else. (Why should people who have greater income allowing them to save additional retirement money, be given a higher social security check than those of lower income who were unable to save additional retirement money?).
A cost-of-living factor should be applied to this uniform social security base amount. Give everyone the same base social security amount, multiplied by the cost-of-living factor for the area in which each individual lives. When a person on social security moves to a different area, recalculate their amount by multiplying the base amount by the cost-of-living factor for the new area. Raise the current social security benefit for those who have been retired for many years, to the same base amount as new retirees so that all retirees, regardless of their age or when they retired, get the same base amount from this time forward. (Why should an 85-year-old get less than $1000 per month based on his earnings from more than 20 years ago, when a 67-year-old who did the same job as the 85-year-old, is getting $1600 a month based on his earnings last year?).
Take back, dollar for dollar, social security money from seniors whose adjusted gross Income, excluding all social security money, is above a certain level (e.g. $200,000).
The Social Security system could also be helped if all pension programs, including those for government workers, were outlawed and all workers were required to be part of the social security program. Pensions became an unnecessary perk when IRAs and 401ks were instituted.
We need to remember that Social Security was basically intended to provide a safety net for low-income people living paycheck to paycheck and totally unable to contribute to savings accounts. The current system is set up to give low-income people a higher benefit than their ss tax would have generated by private savings, while giving high income people a lower benefit than their ss tax would have likewise generated. Privatizing social security will allow higher income people to divert 6.2 to 12.4% more of their income into an IRA, as their take home pay rises due to the elimination of the ss tax on both the worker and the employer. But privatizing social security will most likely not enable low-income people to divert any significant increased percentage of their pay into an IRA, since they will find it desirable if not necessary to use that increase in pay to purchase goods which they need or desire, but which they could not afford before.
JOHN SILVERSTRIM
South Williamsport
Submitted by email