There are other alternatives to ensure a solvent Social Security fund on both the paying in side and at the paying out side.
As you suggest, paying in, we could lift or abolish the cap.
Paying out, we could change the tax treatment of Social Security. Rich Americans only pay income tax on 85% of their Social Security income. One hundred percent of social security income should be included in gross income. The impact on low income seniors would be negligible; on rich Americans it would be a modest increase in taxes.
Paying out we can also look at the payout rate. Despite being regressive at the paying in stage, Social Security is quite progressive when paying out. Right now the Social Security formula for computing one's pension depends on Average Lifetime Earnings (ALE). Each year's earnings are converted into constant dollars and then a monthly average is calculated. Based on this, Social Security pays you:
- 90 percent of the first $767 of monthly ALE
- 32 percent of monthly ALE between $768 and $4,624,
- 15 percent of monthly ALE above $4,625 to the cap of $9,475.Changing the breakpoints, increasing the number of breakpoints (say new breakpoints at $3,000, at $6,000, and at $8000), or reducing the percentage payout at the highest level would maintain payouts for the poorest in our society, but reduce expenditures to those who can most afford it.
Could both Democrats and Republicans agree to such a scheme?