On the one hand, we had Illinois Senator Dick Durbin going back on his longtime word to protect Social Security, now claiming that it must be cut. Durbin's current pet method for cutting Social Security is means testing. Durbin said there was an "urgency" to it although Social Security is able to pay all benefits through 2037. Last time we were handed false urgency, we got two (no, three) wars.
I called Durbin's DC office today to ask what they did with the real Senator Durbin. They just wanted my zip code.
My first reaction to Durbin's comments about Social Security today was that he must be trying to pave the way for Obama to announce his support for means testing, but that didn't turn out to be correct. Today, another Illinoisan, President Obama, was talking about one progressive approach to shore up Social Security, if premature. Obama said he favors eliminating the income cap on FICA taxes. The income cap (or Social Security Wage Base as it is formally named) is the highest amount of income against which FICA will be charged. For 2011, the Social Security Wage Base is $106,800, the same as it was in 2010. That means that after a person has earned $106,800, anything earned on top of that is not subject to FICA taxes.
Raising or eliminating the Social Security Wage Base would bring money into the Social Security Trust Fund without additional taxes to people making $106,800 or less and without cutting benefits to the seniors, orphans and disabled who need it.
Means testing will cut benefits to anyone who has more assets than the threshhold set. The question becomes the income levels that will trigger reduced or no benefits. Kevin Drum writing for Mother Jones discusses the problems with means testing here. Drum, quoting Atrios, points out that means testing is unlikely to bring much into the Trust Fund because there aren't enough rich people to give up their Social Security checks to matter. Remember, means testing takes away the benefit, but does not tax the wealthy on more of their wealth as dropping the income cap would. Drum goes on to describe current means testing in Social Security, the greater your income, the smaller percentage of your income is paid in benefits with income over $4517/month paid at 15%. If you cut that 15% to 10%, according to Drum, you only save the Trust Fund about 1.6%.
If you cut Social Security for people who made less than that, you're cutting benefits for some pretty middle of the road middle class people (considering the average nursing home costs well over $6K/month in the Des Plaines, IL area, and the average assisted living cost is over $4,000/month around Highland Park--double it because you're mostly talking about couples). It's not as easy as cutting the benefits of a bunch of rich celebrities, another one of the Republican themes, because as Drum proves, there aren't enough of them to matter.
So, Durbin is just plain wrong. But what about Obama? I guess we're supposed to be grateful that he hasn't joined the benefit cut choir, but why is he even talking about Social Security in the first place. It's in response to all the angst Republicans created over the budget, but (as I've mentioned many times in the past) Social Security isn't part of the budget.
What's happening is that the very few people who don't need Social Security don't want to pay even the limited FICA they now pay on the first $100K or so of their far greater incomes. Since they need support from the far greater number of people who rely on Social Security to cut or eliminate it, they need to scare the rest of us into thinking the country is broke and that if we don't accept cuts, we'll get nothing. It's not true, but it's a good story and easy to sell because few understand how Social Security works. It's such a good story that Dick Durbin is willing to bet the rest of his political career on it even though he knows it's not true.
The people who understand what Social Security is and does for them are the seniors who get it now. To sell the cuts to current seniors, Republicans promise to leave their benefits untouched. They say "we must continue to honor our current obligation to seniors." But, when you think about it, that's meaningless. The obligation isn't just to those who have already aged into the benefit side of the plan. The obligation to each of us began when the government deducted that first FICA payment out of that first paycheck.
2 comments:
Important to note is that employers are also not subject to the FICA tax after the cap is reached. Most of us earning a wage pay only half of the 12.4% of FICA tax sent to the Fed - we and our employer each pay 6.2%.
Except this year, of course, when we only pay 4.2% due to the budget deal reached in the lame-duck Congress in December.
So eliminating the cap is going to cost companies some money - that employee earning half a million bucks is going to cost the company $24,428 more in payroll taxes.
They should pay because they get the benefit of the original labor and they get the benefit of retiring these folks and saving on their salary and health benefits.
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