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Make Me Smart with Kai and Molly

Episode 135: Your outfit is trash

Oct 15, 2019

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Federal Budget

How to fix Social Security

Marketplace Staff Feb 23, 2011
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Kai Ryssdal: The odds of avoiding a government shutdown look a little better today than they did yesterday. Speaker John Boehner says the House will pass a two-week funding bill, provided it contains some spending cuts.

Therein lies the rub. What will get cut to help control the deficit and what won’t.

Commentator Robert Reich says one program gets an undeserved share of the blame for the deficit. And anyway, there’s an easy fix.


Robert Reich: Social Security is not at all responsible for the federal deficit. Just the opposite. Until last year, Social Security took in more payroll taxes than it paid out in benefits. It invested the surpluses in Treasury bills — in effect, lending them to the rest of the government.

But now Social Security has started to pay out more than it takes in. So to keep it going, it collects only what the rest of the government is obligated to pay it. This will keep it fully solvent for the next 26 years.

But why should there even be a problem 26 years from now? Back in 1983, Alan Greenspan’s Social Security commission was supposed to have fixed the system far beyond then by gradually increasing payroll taxes and raising the retirement age.

The answer is Greenspan’s commission failed to predict how much income would become concentrated at the top. Remember, the Social Security payroll tax applies only to earnings up to a certain ceiling that rises with inflation. That ceiling is now $106,800.

Back in 1983, the ceiling was set so the Social Security payroll tax would hit 90 percent of total income covered by Social Security. Today, though, the Social Security payroll tax hits only about 84 percent of total income.

It went from 90 percent to 84 percent because income inequality has widened. Now a much larger portion of total income goes to the top — almost twice the share they got back then.

If we want to return to 90 percent, the ceiling on income subject to the Social Security tax would need to be raised to $180,000. Do that and Social Security’s long-term problem is solved.

So there’s no reason even to consider reducing Social Security benefits or raising the age of eligibility. The logical response is simply to raise the ceiling.

Not incidentally, several months ago the White House considered proposing that the ceiling be lifted to $180,000. Somehow, though, that proposal didn’t make it into the president’s budget.


Ryssdal: Robert Reich was Secretary of Labor for President Clinton. His most recent book is called “Aftershock: The Next Economy and America’s Future.” David Frum is in our commenting future; he’s back next week. Send us your comments.

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