Home » Government » Time to Cap the Debate on Social Security and Medicare

Time to Cap the Debate on Social Security and Medicare

Social Security and Medicare are in serious financial trouble in the future because they have been under attack for so long that how we thing of them has been changed by those who wish to kill these programs.  Regardless of whose figures you believe when discussing the financial health of these programs, it could all be fixed by scraping the income cut off cap for contributions.  Right now income payroll deduction collect a fixed percent of incomes up to around the first $107,000.  This was just raised to this amount this year.  All income over that amount is not considered.

I am a reluctant proponent of eliminating the Social Security and Medicare income contribution caps.  In the short run this improve the income projects for both programs for some time to come, but it would also plant the seeds of distruction for these programs.  It is helpful to understand why there are these caps to understanding my point.

Social Security and Medicare are government run insurance programs.  Payroll deductions are really premiums to pay for them.  Only those who pay their premiums over the years will be eligible for benefits in the future.  These premiums, collected though payroll deductions, are not income taxes in the sense that they do not fund the federal budget. These programs are not the cause of our federal spending deficits or our national debt (two terms often tossed about as if they meant the same thing).  Both Medicare and Social Security are currently solvent.  They are collecting enough in premiums to cover current expenses.
Because Social Security and Medicare are insurance programs, the premiums have a cap so that the revenues collected are just enough to pay expenses for current recipients.  There is no massive bank account where your money is held until you retire. What we pay in annual premiums, in other words, pays for the benefits received by current recipients.  The cap on income contributions is the means to adjust annual collections to meet current needs.  It is like the volume control, or the valve of a faucet or a dial on a dimmer switch.  The actual percentage of our income that we pay in premiums is fixed.  It is not indexed to inflation.  So even if there weren’t more seniors collecting benefits, the income cap would need to be periodically raised to adjust for inflation.  Raising the cap is how we increase premium revenues without having to change the percentage of money taken out of our salaries.  It is designed to raise the “volume” of cash flow by collecting a little more from just the wealthiest  group of contributors.
But these government insurance programs have always had their critics who, over the years, have attacked these social programs and changed the language used to describe these social insurance programs.  They alter the language in order to frame their debate and change how we think about the programs.  Premiums became” taxes,” “wage garnishment” or “big government spending.”  Benefits became “entitlements,” or “government handouts” and so forth.  As a result, increasing the income cap is, “a big government tax increase,” on the “successful” who are “job creators,” the “makers,” so that our out of control government can give even more money to the “takers”.  We all know the rhetoric on the right.
It is true that premium revenue needs to be raised and it is always true that we need to find more efficiencies in delivering services.  But the opponents of these programs scare the hell out of everyone by conflating current debt and deficits with the potential of future insolvency for these programs if income caps are not adjusted.  So we should either raise the income cap to increase revenue as originally intended or we scrap the cap and make everyone pay a flat percentage of their salary.  This method would still require periodic adjustsments for future inflation and shifting service needs, but raising premium rates would be a much harder thing to do politically since it would affect everyone and not just a handful of people who are well off and won’t hardly notice the change.
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1 Comment

  1. avwalters says:

    I favor increasing the cap–but maintaining the current formula–and proper vernacular–so that this remains a social insurance benefit and not a tax supported entitlement. I also think that immigration reform (and the resulting inclusion into the system for currently undocumented workers) will help a little. In a sad way, many of us who can no longer afford to retire will also help–as we’ll keep contributing into our advanced years.

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