Wednesday, September 21, 2011

Social Security: A Simple Solution

By Robert Reich,      September 9, 2011
Until last year, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government. Now that Social Security has started to pay out more than it takes in, Social Security can simply collect what the rest of the government owes it. This will keep it fully solvent for the next 26 years.
The reason there could be a problem 26 years from now is widening inequality. Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling — now $106,800.
Raising the ceiling on income hit by the payroll tax would restore balance to the system and make it solvent for the long term.

In 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of all wages covered by Social Security. Today, though, the Social Security payroll tax hits only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. In 1983, the richest 1 percent of Americans got 11.6 percent of total income. Today the top 1 percent takes in more than 20 percent.
To return to 90 percent, the ceiling on income subject to the Social Security tax has to be raised to $180,000. Do that, and Social Security would be fully solvent over the long term.
Social Security isn't a Ponzi scheme, but it is vulnerable to widening inequality. The logical response to the increasing concentration of income at the top is simply to raise the ceiling.

Robert Reich, a professor at the Goldman School of Public Policy at the University of California at Berkeley, was secretary of labor in the Clinton administration. He is the author, most recently, of "Aftershock: The Next Economy and America's Future," and he blogs at