Thoughts of an American Centrist

Tuesday, June 07, 2005

The Wexler Plan for Social Security

The American Centrist applauds the efforts of Reps. Robert Wexler (D-FL) and James P. Moran Jr. (D-VA) for breaking with their party and proposing a solution to the Social Security problem (I refuse to call it a "crisis"):

[The Plan] would address Social Security solvency entirely by raising payroll taxes. Earnings of up to $90,000 are currently subject to a 12.4 percent tax; Mr. Wexler would impose a 6 percent tax (half paid directly by the employee, half by the employer) on earnings above that.

It's not a perfect proposal by any means, but the way the pundits are talking, you'd expect every member of congress to be endowed by their creator with the ability to create a flawless and balanced Social Security plan on the first draft. Here's what the editors of the post had to say:

This plan is both unbalanced and inadequate. It's unbalanced because it seeks to address the Social Security problem solely on the tax side, while making benefits untouchable. But government will face other compelling uses for new revenue; why should the fruit of any tax increase go entirely to seniors? Why in an age of scarce governmental resources should seniors -- whatever their income -- be eternally shielded from having to give up anything in the way of benefits? The plan is inadequate because, by not making any adjustments in promised benefits, it doesn't put Social Security on a sustainable footing. By pouring more money into the program without taking any steps to reduce future costs, it would postpone the problem, not solve it.

OK, I can agree that the proposal is unbalanced. However, what do you expect from the Congressman who represents more seniors than any other House member? Of course this proposal is incomplete: it reflects the interest of his particular constituents. Instead of giving grudging and half-hearted praise to their efforts as an afterthought, we should be heartily welcome these two policy makers into the discussion.

Is there a place for this Proposal?
Just because the plan is unbalanced does not mean that it is without merit. Many people have misleadingly labeled the increasing of the salary cap a simple "tax hike." Of course, increasing the salary cap would be a tax hike for the top 10% or so of individual wage earners. Even then, the burden would not be unbearable. For someone earning $100,000, the additional tax would amount to $300 per year under Rep. Wexler's proposal (approximately $12.50 per pay period). There would be no difference whatsoever for anyone making under $90,000.

I firmly believe that increasing the salary cap should be a part of any final social security fix, but it must not be the only part. I reject the implicit assertion articulated by the editors of the post that we're making our current social security recipients too comfortable. Many of our retirees have paid into the system since Roosevelt's time, and deserve the fruits of their compelled investment. While it is a certain fact that any viable retirement strategy cannot rely solely on social security for income, castrating the program for those who already depend on it is not the answer.

What I do support, however, is the raising of the retirement age. Back in Social Security's hey-day, a man would work until he was 65, retire, and live a happy retirement for maybe 5 or 10 years. Today, thanks to near miraculous advances in the healthcare industry, seniors are outliving their mothers and fathers by and additional 10 or 20 years. The Social Security system is not designed to bear that kind of burden. The American Centrist fully supports a stepped approach to raising the retirement age to 70 over a period of 15 years. A 70 year old man in 2005 is, on average, much healthier than a 65 year old man was in 1950, and his additional years of employment would to a tremendous amount to ease the pressures on the system.

I'm still deciding my opinions on the President's plan for progressive indexing of benefits. My first impression is that while this policy may solve a long term accounting problem today, the actual effects of having a dual policy for distributing social security benefits may prove to be a nightmare in the future. I haven't made up my mind on that yet, so I'd really like to hear your thoughts on the issue.

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