Tuesday, November 8, 2011

Social Security and income inquality

Merrill Goozner makes a point about Social Security in a recent essay that I've made in this blog as well; however, it is a crucial point that often goes unreported, so I will repeat it again.

The Social Security program, a wonderful  --and, at the time, truly progressive if not radical -- social compact between generations, was set up with the expectation that 90% of American wages would be subject to the withholding tax (FICA). And, indeed, this was the case -- at first. However, the tendency in American capitalism is for more and more wealth to be concentrated in fewer and fewer hands. Since the FICA tax is capped at a certain level -- which is currently about $106,800 per year -- the very wealthy don't pay taxes on a lot of their income. The result is that now only about 83% of American income has SS taxes withheld. This is responsible for a good chunk of the negative imbalance between SS payments and SS income.

Most of the rest of the imbalance can be attributed to the population bulge of the "baby-boomer" generation, longer lifespans, and, of course, the grim recession we are now experiencing and will most-likely continue to experience for years. (Yes, I know, professional economists say it's not technically a recession any longer, but they are not out of work -- yet.)

If we can substantially raise the cap on FICA wages and get the economy going in a few years, we can weather the storm of the baby-boomer bulge and have SS emerge once again as a strong program.

Medicare -- and healthcare in general -- is another story.

1 comment:

  1. The estate tax and federal income tax were initially designed to hit the ultra wealthy but Congress expanded to other income brackets. Many things change over time with unintended consequences.