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Fixing Social Security, Part 2 of 2

social security card.jpgIn our previous blog post, we discussed eliminating or changing the cap on Social Security earnings as a way to strengthen the funding of the Social Security Disability and Social Security Retirement programs. This approach appears to be the one preferred by the greatest number of people. However, there have been other proposals to "reform" Social Security, and this blog discusses them below.

One proposed fix would be to increase the rate at which people are taxed. Currently, payroll deductions for Social Security programs are 12.4 percent of earnings, with employers and employees splitting the cost. Raising the tax to 15 percent would fix the program for the next 75 years.

A proposal that has almost no traction is to develop progressive tax rates based on the amount earned. The idea is that those who earned the most would pay the highest percentage of their earnings in payroll taxes. Like raising the percentage of tax overall, instituting progressive payroll tax rates is something that would be dead on arrival if it were introduced in Congress.

Other ideas could be considered: Raising the amount that SSD recipients could earn is one proposal, although most SSD recipients cannot work, limiting the benefit of this change to a very few. Another proposal is changing the way the annual cost of living increase is calculated. This could reduce benefit increases by a very small amount. For example, someone who would have received a $50 increase might have that reduced to $47. Over time, these minimal changes can add up. Raising the retirement age is another approach, and implementing a means test is yet another.

Most of these proposals are either somewhat or very unpopular, according to a story in U.S. News & World Report. The one that appears to be the most acceptable to the American people is eliminating or raising the income cap on taxable earnings. Whether Congress has the political will to do make this change remains to be seen.

Sources:

http://thehill.com/blogs/congress-blog/economy-budget/204996-scrapping-the-social-security-payroll-tax-cap

http://www.bizjournals.com/bizjournals/washingtonbureau/2015/08/social-security-turns-80-are-higher-payroll-taxes.html

http://www.ssa.gov/policy/docs/policybriefs/pb2011-02.html

http://money.usnews.com/money/blogs/planning-to-retire/2014/11/14/5-potential-social-security-fixes

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