Social Security: Time to Uncap FICA…

Brad DeLong: 

Social Security: Time to Uncap FICA…, by Brad DeLong: For nearly thirty years–ever since the Republican congressional barons of 1982 begged Reagan to allow them to increase taxes and then figured out that a tax increase that would “save Social Security” was one that he would accept–the rest of the federal budget has ridden on the back of Social Security and its operating surplus. Those days were coming to an end, and it looks like the magnitude of the current crisis means that that end comes… now.

The Congressional Budget Office reports that the era of Social Security Trust Fund services is over:


The smart thing to do would be for congress this fall to (a) uncap FICA–apply it to all of wage-and-salary income rather than just the bottom 90%–starting in 2012 and raise the retirement age to 70 in 2030, thus hitting those born in 1960 and later (i.e., me). And then revisit the system in a decade and see what shape it is in.

Adding-on some tax-preferred properly-incentivized individual accounts as an add-on, not a carve-out would be a good idea as well.

Some day the Social Security program will have to be tweaked. It doesn’t need radical restructuring, but it does need to be nudged in the right direction. When that happens, I would rather have Democrats sitting in the driver’s seat than Republicans. But it has to be Democrats I can trust.

The health care reform process will tell me a lot about whether I can trust the Obama administration to negotiate Social Security changes on my behalf. Right now, the tendency to give too much away in order to make a deal along with a tendency toward centrist or even conservative policies makes me hesitant to put full faith in the administration as my bargaining agent. For example, Brad says he would favor individual accounts that are an “add-on, not a carve-out,” but once private accounts are on the table, will they be willing to give on this point and allow a small carve-out just to get a deal done (though the financial crisis has made this less worrisome since it will be a much harder sell)? I wish I could say no, never, but I can’t. The administration seems willing to make such deals, and once that door is open, it could lead to further erosion in the program down the road. Maybe after I see then hold the line in the health care debate, I’ll feel more confident, but that hasn’t happened yet.

One final thought. If we are going to consider changing the retirement age, I hope we don’t limit the discussion to people who spend most of their working lives sitting in a chair, i.e. that we allow people whose bodies have been broken by years and years of hard manual labor to have a voice in the discussions. I also hope that we consider more than simply how long people live in making this choice, and that whatever we do, people from all walks of life can still reasonably expect to enjoy a few years of active retirement after working for so many years. I’m not sure a retirement age of 70 meets this goal.

Originally published at Economist’s View and reproduced here with the author’s permission.  

One Response to "Social Security: Time to Uncap FICA…"

  1. Guest   August 20, 2009 at 3:12 pm

    The problem with uncapping the FICA tax is the self employed person. If you uncap FICA what would be the % tax a self empolyed person would pay in taxes to the federal government if he makes over $125,00? 50 yo 60 percent? Add state and local taxes and is it worth getting up in the morning to work.I do believe I am more of an expert on this issue than you are since I was self employed at one time. I purchased health insurance which at that time was not tax deductible – took years for that reform to go through. I know if I was faced with paying over 50% of my profits in taxes I would fine a way to hide it.I beleive the better option is means testing social secuity. There are very nice state retirement packages – in my state a teacher retiring after 30 to 35 years in the profession will receive around $55,000 a year in pension, why are they receiving full Social Security?