How worried are America\u2019s wealthy about the possibility they\u2019ll be hit with a higher tax for Social Security? <\/p>\n
Plenty, judging from the endless creativity of their proposals to improve the program\u2019s fiscal condition by cutting benefits rather than raising revenue (typically from our most affluent taxpayers).<\/p>\n
The latest run at this fence comes from the Committee for a Responsible Federal Budget<\/a>, which as I\u2019ve explained before is an offspring of the late billionaire hedge fund operator Peter G. Peterson<\/a>, who was an obdurate foe of Social Security. The committee dubs its proposal the \u201cSix Figure Limit,\u201d which is accurate enough: It would cap annual Social Security benefits at $50,000 per person, or $100,000 per couple.<\/p>\n The $100,000 amount will continue to erode to the point that it is a subsistence level benefit unrelated to prior earnings, just as conservatives have been advocating since 1936.<\/p>\n \u2014 Nancy Altman, Social Security Works<\/p>\n Make no mistake: This is a benefit cut. It\u2019s part and parcel of the enduring Republican and conservative project to protect their rich patrons from paying taxes to cover their fair share of the costs of social programs. <\/p>\n As recently as a White House event Wednesday, President Trump revived the old \u201cguns or butter\u201d debate\u2014it was Lyndon Johnson who said during the Vietnam War that the country could afford both, but Trump stated that as long as \u201cwe\u2019re fighting wars…it\u2019s not possible for us to take care of daycare<\/a>, Medicaid, Medicare, all these individual things.\u201d <\/p>\n Trump said those programs should be taken up by the states, which would have to raise their own taxes, allowing the federal government to \u201clower our taxes.\u201d<\/p>\n The committee claims its proposal would affect only the richest, but that\u2019s true only as a snapshot of current conditions. About 1.2 million of the 53.6 million retirees receiving benefits today, or about 2.3%, receive enough from Social Security to breach the $50,000 annual cap. <\/p>\n Typically they\u2019re retirees who earned the maximum taxable wage income \u2014 $184,500 this year \u2014 almost every year of their work careers, and also opted to defer receiving their benefits until age 70 to receive a higher monthly stipend. Thanks mostly to inflation, however, the cap will creep into the middle class as sure as water seeks its own level; that may take years, but by the time today\u2019s youngest workers retire, it would be entrenched in the system.<\/p>\n Get the latest from Michael Hiltzik <\/p>\n Commentary on economics and more from a Pulitzer Prize winner.<\/p>\n By continuing, you agree to our Terms of Service<\/a>, which include arbitration and a class action waiver. You agree that we and our third-party vendors may collect and use your information, including through cookies, pixels and similar technologies, for the purposes set forth in our Privacy Policy<\/a> such as personalizing your experience and ads. <\/p>\n The proposal reflects one of Pete Peterson\u2019s hobby horses, which was the idea that scads of money could be saved by means-testing Social Security so billionaires like himself don\u2019t get handouts they don\u2019t need. <\/p>\n The Six Figure Limit reads like a stepchild of that notion, but as I\u2019ve reported before, the problem with it is that means-testing Social Security wouldn\u2019t save the program much money unless you started cutting means-tested benefits at incomes as small as $50,000<\/a>.<\/p>\n The CRFB\u2019s proposal, as embodied in an explanatory manifesto posted on its website<\/a>, doesn\u2019t explain why $100,000 should be the cutoff, other than that maybe it\u2019s a nice round number. <\/p>\n \u201cThis is a program that, when you go back to its founding, was a measure of protection against falling into poverty,\u201d Marc Goldwein, the committee\u2019s senior policy director, told CBS News<\/a>. \u201cThe fact that an income support program would pay six figures is a little silly.\u201d<\/p>\n I asked the committee what\u2019s \u201csilly\u201d about a couple receiving $100,000 from Social Security after they\u2019ve paid for it all their working lives, and given that U.S. median household income was $1,071 when Social Security was founded in 1935 and today it\u2019s $83,730. I didn\u2019t hear back.<\/p>\n The committee acknowledges that only \u201ca small fraction of retirees\u201d currently receive benefits of $50,000 or more today. But it frets that \u201c$100,000 benefits will become increasingly common as Social Security\u2019s benefit formula leads benefits to grow over time.\u201d This isn\u2019t quite true: It\u2019s economic growth, more than the benefit formula, that does that, by advancing average wages. <\/p>\n Social Security advocates and experts have responded to the proposal with disdain. Nancy Altman, president of Social Security Works, labels it a \u201cTrojan horse.\u201d <\/p>\n That\u2019s because of its proposed structure. The committee presents three possible models: Two would fix the cutoff at $50,000 per person for 20 or 30 years. The third would allow it to increase in accordance with the chained consumer price index, a little-used inflation metric that rises more slowly than the commonly used urban CPI. <\/p>\n Either way, Altman observes, \u201cthe $100,000 amount will continue to erode to the point that it is a subsistence level benefit unrelated to prior earnings, just as conservatives have been advocating since 1936.\u201d <\/p>\n The CRFB manifesto is a scary document. It asserts that the cap would be a boon for economic growth by reducing federal borrowing and prompting retirees to rely more on resources such as personal savings and investment returns. <\/p>\n This happens, it says, according to \u201ca large body of research\u201d finding that \u201cworkers \u2014 especially high-income workers \u2014 increase their private retirement savings in response to reductions in expected public pension benefits.\u201d In other words, if you\u2019re afraid your Social Security is going to be cut, you put more in your IRA. <\/p>\n That makes sense, but only superficially. First, what about everyone other than \u201chigh-income workers\u201d? Many middle- and working class households already struggle to meet common everyday expenses, let alone saving for college and retirement. Where will they find the money they\u2019ll need once Social Security is gutted?<\/p>\n Second, who says workers invariably save more when they\u2019re afraid of Social Security cuts? The committee footnotes this assertion to a Congressional Budget Office meta-analysis<\/a> of 30 studies, conducted in 1998. What did the CBO learn? It was that no one knows. <\/p>\n Some studies, the CBO said, found that each dollar of expected Social Security reduces personal savings, but the range of reduction was \u201cbetween zero and 50 cents.\u201d In other words, the phenomenon may or may not be real. And if not, this pillar of the Six Figure Limit crumbles to dust. People will be thrown back on personal resources that don\u2019t exist.<\/p>\n The CRFB manifesto contains other specious arguments. For example, it argues that America\u2019s Social Security benefits are unduly generous in global terms. It validates this conclusion by comparing the maximum benefit in the U.S. in 2024 ($93,452 for a couple) to those of such other advanced economies as France ($69,403 in purchasing parity with the U.S.), Canada ($43,608) and the Netherlands ($41,765).<\/p>\n Yet the comparisons are suspect. National pension systems are highly diverse. France\u2019s social security program, for example, is a mandatory supplement to private pensions, unlike in the U.S. In some countries, old-age benefits are part of broad social programs that include universal government-paid healthcare as well as government child care and other social services that don\u2019t exist in the U.S. I asked the CRFB to respond to these issues, but received no reply.<\/p>\n It\u2019s important to keep in mind that proposals like this have one fundamental goal: sparing the wealthy from an increase in their Social Security payroll tax, which is the only way to ensure the program\u2019s fiscal feet stand on dry ground other than cutting benefits.<\/p>\n This year, the tax of 12.4% is levied on wage income up to $184,500, with half paid out of worker paychecks and half directly by employers. That means workers will pay a maximum $11,439, with employers paying the same.<\/p>\n On wages higher than the income tax cap, the rate drops to zero. For someone with income of, say, $500,000, the effective rate for each side falls from 6.2% to about 4.3%; for those with $1-million incomes, it falls to 2.28% on each side. Since the tax is on wage income alone, wealthier taxpayers get an additional break \u2014 half of the income or more for the richest Americans is in the form of investment income, which isn\u2019t taxed at all for Social Security. <\/p>\n Making such so-called unearned income part of their tax base and eliminating the tax cap would improve Social Security\u2019s fiscal balance far more than the Six Figure Limit, but that would significantly increase the Social Security tax liability of millionaires and near-millionaires. That may explain why their cat\u2019s paws in Congress and at conservative think tanks expend so much energy finding alternatives to a tax hike.<\/p>\n It\u2019s tempting to relegate this latest idea to the pile of transparent maneuvers to avert a higher Social Security tax, but the danger is that policymakers and pundits will parrot the argument that $100,000 is just too much for a retirement pension. The Washington Post editorial board started the process on March 24 with an unsigned editorial headlined, \u201cNobody needs over $100,000 per year in Social Security benefits.\u201d<\/a> <\/p>\n The piece balanced the putative generosity of Social Security against the federal government\u2019s $39-trillion debt and a federal deficit \u201clarger than during the Great Depression,\u201d as though those are the consequences of providing for 53 million retirees, disabled persons and their dependents, rather than enormous tax cuts provided for the wealthy. The Post\u2019s owner, Amazon.com founder Jeff Bezos, is one of the richest men on Earth. <\/p>\n