Your Editorial ,
Social Security, Present and Future (New York Times
Weekly Review, March 31, 2013: 10) is correct in dismissing the chained
CPI as a solution. The adoption of the
chained-CPI would be most regressive. Chained-CPI lags the regular CPI
by 0.25%. Worse, the regular CPI lags an experimental elderly-CPI by
0.3%. The impact would be most severe on the poorest of seniors. As you
suggest a firm elderly CPI should be developed.
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?