Rising Inequality & Social Security’s Shortfall: The link

In this interesting piece Sean Williams of The Motley Fool suggests lawmakers will have to tackle rising income inequality in order to address the solvency of the Social Security program for future generations.  How are the two linked?  Williams notes wealthier people live longer, likely in part to better health care access.  This means they draw the highest benefit checks the longest as compared to poorer Americans.  He also describes the $132,900 taxable wage maximum as an obstacle to more revenue for Social Security.  From 1983 to 2016, the amount of earnings exempted from taxation rose from $300 billion to $1.2 trillion.  That equates to $150 billion in potential payroll tax revenue lost.  It is unclear if this figure is just from untaxed wages in excess of the cap or the fact that dividends, interest income, capital gains, and rental income also are not subject to payroll taxes.  At any rate, Williams notes that in 1983, nearly 90% of all earnings were subject to the payroll tax but dipped to below 83% by 2016.  If this taxable ratio were to fall to 81%, quite plausible based on the long-term trends, Social Security would reach partial insolvency in 2033, a year earlier than current projections.  Read the full piece here.

The Association of Mature American Citizens (AMAC) has a different approach to Social Security reform, making modest changes in cost of living adjustments and the retirement age, without the need for any tax increases on workers.  AMAC advocates for a bipartisan compromise, “The Social Security Guarantee Act,” taking selected portions of bills introduced by former Rep. Johnson (R-TX) and Rep. Larson (D-CT) and merging them with the Association’s own well researched ideas.  One of its several components is Social Security PLUS, a new yet voluntary early retirement plan that would allow all earners to have more income available at retirement.  This component is intended to appeal especially to younger workers.  AMAC is resolute in its mission that Social Security be preserved and modernized and has gotten the attention of lawmakers in DC, meeting with a great many congressional offices and their legislative staffs over the past several years.  Read AMAC’s plan here.



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