Editor’s Note: The article below is NOT written from a clear left or radical standpoint, but from a totally mainstream, establishment position. We thought it was worth republishing here because as you will see below, even among mainstream voices the raising of the income cap in social security contributions is seen as the most effective and simple path toward removing this issue from the table as a national problem. Yet the politicians do not act. Isn’t that yet another piece of evidence pointing to the shameless bankruptcy of the US political class? This is a nation without real popular representation. The sooner the masses get that little fact through their benighted heads the sooner some real solutions will have a chance of being discussed. —PG
By Carla Fried | Jun 21, 2011 |
A recent article in the Wall Street Journal suggested that the earth had seismically shifted on the 37 million members of AARP. Under the headline “Key Seniors Association Pivots on Benefit Cut” that quoted AARP’s policy chief John Rother at length, the June 17 article stated that AARP was ready to drop its opposition to cutting Social Security benefits. So much for a slow summer Friday news cycle. Before you could utter the phrases “raise the retirement age” or “cut the cost of living adjustment,” a coalition of advocacy groups against entitlement cuts had lodged its displeasure with AARP. And that’s when AARP shot back with a press release titled “AARP Has Not Changed Its Position on Social Security.” Confused? Here’s a cheat sheet for what’s really going on:
- AARP is adamant that Social Security not be part of any discussion of deficit reduction. Right now you can’t talk about much of anything in Washington without it being framed within the context of deficit-reduction talks. So to have a national publication like the Wall Street Journal run an article about reducing Social Security benefits article right in the midst of Vice President Joe Biden’s deficit-reduction talks is, well, sort of interesting. In fact, AARP CEO A. Barry Rand was pretty clear in the organization’s press release that AARP would not entertain any inclusion of Social Security in deficit talks: “We are currently fighting some proposals in Washington to cut Social Security to reduce a deficit it did not cause. Social Security should not be used as a piggy bank to solve the nation’s deficit.”
- But AARP is open to discussing ways to shore up Social Security so it will not be a drain on federal coffers come 2036. While AARP is correct to point out that Social Security did not contribute to the current deficit, the program will in fact be a revenue drain come 2036 when it will no longer be taking in enough from current payroll taxes to cover benefit payments. At that juncture, Social Security will take in enough tax revenue to cover only 77 percent of its current promised benefits. So we either need to get comfy with the notion of a 23 percent buzz cut in benefits down the line, or we can have a grown-up conversation about how to tweak the program today to close that gap. In the press release, Rand made the point that “we have maintained for years — to our members, the media, and elected officials — that long-term solvency is key to protecting and strengthening Social Security for all generations, and we have urged elected officials in Washington to address the program’s long-term challenges in a way that’s fair for all generations.”
In an interview on Monday, David Certner, AARP’s legislative policy director, added “that’s a broader discussion, and it’s a conversation we want to have.” It’s just that AARP refuses to partake in any conversation that frames Social Security reform as part of a deficit-reduction plan. Certner also mentioned that reaction to the WSJ article and dust-up has “so far been fairly light.” Last I checked, there were 178 comments posted on AARP’s Facebook page that included the organization’s response to the WSJ article.
So to recap: AARP is still very much against any attempt to carve into Social Security to reduce the current deficit, but it recognizes that, yes, the program does need tweaks to address its longer-term solvency. That shouldn’t be controversial, it’s just common sense. As for what specific reforms AARP would get behind, Certner said “we’re not even at the beginning” of discussing the various options with AARP’s members.
- Senior citizens: relax; no one is going to touch your benefits. The Wall Street Journal article cited a recent WSJ/NBC News poll in February that found 84 percent of Americans at least 65 years old are opposed to benefit cuts. As if that’s news? Perhaps what’s more surprising is that 16 percent of current retirees would be even open to the idea. But no one, and I mean no one, in Washington is suggesting that current beneficiaries be impacted by any future reform. All the various deficit reduction plans floated this past fall and winter were very clear that anyone age 50-55 would be unaffected by any proposed reforms. Even Paul Ryan was clear that his Medicare plan would not be imposed on anyone already 55 or older. It would be really helpful if all interested parties in entitlement reform discussions stopped with the fear-mongering talk about cutting benefits for current beneficiaries. It’s flat out wrong, and keeps us from focusing on fixing the program for future beneficiaries.
- There is a solution that has wide support. The crazy thing about all this he said/she said inanity is that Americans are pretty clear on how we would like to fix Social Security’s 23 percent shortfall. In poll after poll, a majority of Americans say they are in favor of raising the amount of income that is subject to the Social Security payroll tax. A coalition of entitlement advocacy groups — Social Security Works, the National Committee to Preserve Social Security and Medicare Foundation, and the Alliance for Retired Americans — is set to release a 5-state poll later this week showing that 77 percent of Democrats, 68 percent of Independents, and 65 percent of Republicans are behind the idea of raising the income limit for the Social Security payroll tax. “We think you can solve the shortfall by raising the income cap,” says Frank Clemente, campaign director of Social Security Works.
Right now, we all pay a 6.2 percent tax on the first $106,800 of income (the payroll tax is just 4.2 percent this year, thanks to a one-year stimulus break). Above $106,800, the tax disappears, though the cap is adjusted annually for inflation. The non-partisan Employee Benefits Research Institute figured out that we could completely solve Social Security’s shortfall if we agreed to lift that income ceiling, and tax every dollar of income.
But it turns out we probably don’t need to go all out. Robert Reich, former secretary of Labor under President Clinton and a former trustee of the Social Security Trust fund, says we could actually get all the money we need to close the gap by collecting payroll tax on just the first $180,000 of income. That’s it. Think the rich would be against that? Hmm. In a January poll, 72 percent of respondents with income above $100,000 said they were behind raising the income limit rather than reducing benefits or raising the retirement age. Not exactly a divisive issue, is it?
According to Reich, the last time we reformed Social Security — yep, this isn’t the first tweak; the program was altered in 1983 when the full retirement age was set on its gradual rise from 65 to 67 — the presumption was that the payroll tax would be levied on about 90 percent of the country’s total income. But because the rich have gotten so much richer than everyone else, the payroll tax now collects on just 84 percent of our gross national personal income because it cuts off after the first $106,800. Raising the income cap to $180,000 and then indexing it to inflation would bring us back to the 90 percent capture rate. Is that a new levy on the wealthy? Absolutely. But 7 out of 10 of people who would be impacted say it’s the palatable fix compared to other options, and it’s really just getting us back to what the Social Security trustees intended nearly 30 years ago.
Granted, that doesn’t make for a great headline or purported controversy. All it does is fairly elegantly solve a problem. We can debate if we in fact want to solve that problem, but let’s all be clear that this is one issue with a clear and — for these times — relatively uncontroversial fix.
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