A Stitch in Haste

A follow-up to my previous post on the President's unfortunate statement that raising the wage cap on Social Security taxes is "on the table" --

ITEM: The Wall Street Journal nails the issue --

But one of the ironies here is that the earnings limit for payroll tax contributions exists because that's the way Social Security's Democratic creators designed it. That is to say, they didn't want it to be perceived as a soak-the-rich welfare program, but as a "universal" compulsory savings scheme. Since payouts would be limited, it was only natural that contributions would be too.

Indeed. Note also the linguistic gymnastics of calling Social Security taxes "FICA Contributions" and the program itself "Old-Age Survivor and Disability Insurance." Sounds downright laissez-faire. It's also a crock.

Remember, the wage cap already increases every year. "From here to eternity" as the Journal phrased it.

ITEM: The New York Times, meanwhile, calls raising the wage cap (which must of course mean raising it even more than it's already scheduled to increase), as "modest." Yeah, about as modest as the Stamp Act.

ITEM: The Heritage Foundation, meanwhile, does what the Times apparently cannot: crunch the numbers --

A recent report from the Social Security Administration (SSA) examined the effects of not just raising the wage cap, but of eliminating it completely. Under this radical approach, Bill Gates and Donald Trump would pay Social Security taxes on every dollar that they earn. They would also receive benefits on those earnings. The scoring memo also examined a still more radical proposal: that people would pay Social Security taxes on all of their income but receive benefits only on income below $87,900, the wage cap that was used in the SSA study. This would be a major shift from the current policy that Social Security benefits are based on a worker's taxable income.
...
SSA's actuarial study showed that that eliminating the payroll tax cap entirely would only delay the start of Social Security's annual deficits by six years, from 2018 to 2024. Eliminating the wage cap on payroll taxes while paying benefits on only the first $87,900 of earnings would delay the start of annual deficits by an additional year, to 2025.

So, even implementing the "nuclear" option of eliminating the cap entirely, or the "nuclear + neutron bomb" option of scrapping the cap with no corresponding increase in benefits, only buys six or seven more years of solvency. And remember, scrapping the cap, in one stroke, would constitute the single largest tax increase in American history.

Fans of "scrap the cap" are not motivated by a desire to fix Social Security, to "restore equity to the system" or to help the working poor. They are motivated by hatred of the wealthy, pure and simple.

ITEM: Senator Lindsay Graham (Republican from South Carolina) has proposed a fascinating compromise, which is being called the "Doughnut." Graham's Doughnut would keep the current $90,000 cap (i.e., continue to screw the working poor), but would also allow an exemption (i.e., a "doughnut hole") on wages from $90,000 to $300,000, with all wages above $300,000 subject to Social Security tax. The logic being that those with incomes in the "doughnut" aren't really "rich" and should not be crippled with such a massive tax increase, and neither should their employers. Those earning above $300,000, on the other hand, well, they really are rich -- so screw 'em.

Now I won't lie, Graham's Doughnut would be great for me -- I'd be shouting "Ka-Ching! Ka-Ching!" from Manhattan all the way to Vegas. But there really is no intrinsic logic to the plan that I can see, other than the fact that the politicians can get away with it. Then again, there's little logic to Social Security at all, so there you go.

For Discussion: Is "Graham's Doughnut" a good idea? Why or why not?

Related Post:
Bush Caving on Social Security Wage Cap?