How To Deal With Social Security

by Stuart Shapiro

Social Security is not part of the debt problem and should not be part of the fiscal cliff negotiations.  That said, there are ways to improve the long term health of one of the most critical government programs in U.S. history.  Kevin Drum has some good ideas:

  • Chained CPI. Every year, Social Security benefits are increased to account for inflation. Many experts—and not just conservative experts—think conventional measures of CPI overstate actual inflation and suggest we should change to something called “chained CPI.” This would have the effect of very slowly reducing the growth of benefits over time.
  • Payroll tax cap. In 1977, Congress set the maximum income subject to payroll tax so that 90 percent of all income would be taxed. Since then, however, growing income inequality has pushed more and more income to top earners. Because of this, the payroll tax cap only captures 86 percent of all income today. We should return to Congress’s original intent and phase in an increase in the payroll cap so that we once again tax 90 percent of all income

He goes on to point out:

Neither one of these options represents a real change to Social Security. Rather, they represent an effort to return Social Security to where Congress intended when it originally set tax and COLA policies in the 1970s. We could, literally, do this deal tomorrow if there were even the slightest seriousness in Washington about addressing Social Security in a reasonable way.

Of course, then, no one could use Social Security as a weapon or argue that it is bankrupting us.  So I’d be surprised if this happened.

About Stuart Shapiro

Stuart Shapiro Stuart is a professor and the Director of the Public Policy program at the Bloustein School of Planning and Public Policy at Rutgers University. He teaches economics and cost-benefit analysis and studies regulation in the United States at both the federal and state levels. Prior to coming to Rutgers, Stuart worked for five years at the Office of Management and Budget in Washington under Presidents Clinton and George W. Bush.

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