NCPA - National Center for Policy Analysis

Tweaking Social Security Won't Fix Problems

March 29, 2004

The latest report of the Trustees of Social Security and Medicare confirms earlier forecasts that the system is headed for failure (see highlights of public trustee and NCPA Senior Fellow Thomas R. Saving's briefing But some observers think the financial problems of these federal entitlement programs have been exaggerated. For instance, opponents of reform say that Social Security's funding gap, now estimated at $10.4 trillion, can be bridged with a "tweak."

The "tweaks" they suggest include reducing the growth of future benefits and increasing the payroll tax.

  • Some would hike the payroll tax by removing the earnings cap -- which would raise taxes on 9.2 million Americans currently, and would only delay the system's cash-flow deficit from 2018 to 2025.
  • Furthermore, as Matt Moore of the National Center for Policy Analysis points out, workers will shift their income from wages subject to the tax to other sources, such as stock options and nontaxable benefits -- reducing the additional revenue Social Security might gain from subjecting all wages to the payroll tax.

And finally, if workers don't earn more benefits for those extra tax payments -- which is the only way a payroll tax hike could help the system -- Social Security would be more like a welfare program, with benefits unrelated to contributions.

Source: Editorial, "Choice Not Chains," Investor's Business Daily, March 29, 2004.

For Matt Moore analysis


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