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.

    ReplyDelete

Note: Only a member of this blog may post a comment.