Retirement Blog

Finance Blogs » Retirement Blog » Raise taxes to fix Social Security

Raise taxes to fix Social Security

By Jennie L. Phipps ·
Wednesday, June 5, 2013
Posted: 5 pm ET

Social Security's financial situation hasn't changed much since last year, according to the annual Trustee's Report released last week.

  • Social Security's deficit remains at 2.7 percent of taxable payrolls nationwide.
  • Its deficit is 0.9 percent -- that's less than 1 percent -- of the gross domestic product.
  • There is enough money in the Social Security trust fund to pay full retirement benefits through 2033. After that, payroll taxes at current levels will bring in about 75 percent of the money required to pay Social Security's obligations.

Despite what some argue is a positive outlook for this retirement planning program, almost all the Social Security gurus who have analyzed this report agree that something should be done to put Social Security on a solid footing at least for the next 75 years, so younger generations can continue to count on it.

Veteran economist Alicia Munnell, director of the Center for Retirement Research at Boston College, says the best fix is the easiest one: Raise the payroll tax for both employees and employers. By her calculation, if payroll taxes were raised by 2.72 percentage points -- 1.36 percentage points each for employees and employers -- Social Security would be able to pay benefits, calculated the way they are now, through 2087, when somebody born today would be 74 years old.  By then -- who knows? That's kicking the can a long way down the road.

Munnell says most people won't be hurt by such a small increase in taxes. Payroll taxes were cut for employees in 2011 and 2012 by 2 percent and reinstated in 2013, and a lot of people didn't even notice the change, she says.

The most popular suggestion for fixing Social Security is to raise the current $113,700 wage cap, but for that plan to more than minimally cut the deficit, high earners couldn't get more benefits. Munnell says, "If we're going to raise the base, we should provide more benefits."

She also is unenthusiastic about trimming the way the cost of living adjustment, or COLA, is calculated, a proposal that has received the nod from President Barack Obama. "I'm sad that it was thrown out there. It didn't do anything but garner opposition and correctly so, because it is a benefit cut. As part of a package where we put a lot more money in the program, changing the way the COLA is calculated might be a possibility, but it isn't the way to lead off the debate on fixing the system.

"When I look around, I see only 401(k) plans with minimal balances, so Social Security is going to be all that most people have. Therefore, I come down on the side of putting more money in the system instead of cutting benefits," Munnell says, firmly.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
Joe The Economist
June 07, 2013 at 9:21 pm

If we raise taxes, the money should go to control the deficit. Raising taxes at this point for Social Security is like putting a 401K contribution on your child's credit card.

It is not well thought policy.

June 07, 2013 at 11:20 am

It won't do any good to raise taxes to fix Social Security when the government would just take from it. They should be forced to repay the 2.7 trillion that has been taken from the funds. What has happened to all the money that has been paid in and the person doesn't live long enough to draw his or her Social Security?

June 06, 2013 at 2:37 pm

Raise the payroll taxes for new/never been paid employees, and grandfather in the everyone that has been paying in for years except the highest income. Anyone making over $113,700 should be Social Security taxed on all their income. The Social Security tax on someone making 200,000 would only be $5000 annually or $450.00 a month. You cannot say that their quality of life is going to be any worse. $5000.00 on the low earners is food off the table, gas for the car, medicines, etc.

June 06, 2013 at 1:58 pm

Where is she getting this information? What person does not realize when his net pay decreases? I absolutely noticed that my net salary decreased by over $100 each month. Also, the baby boomer generation is already paying twice the percentage of previous generations. Why should we now be asked to pay even more? Our benefits are not going to increase. This will just lawmakers a new nest egg to pilfer.

The way to fix this program is to return the money that was pillaged and stop paying out to people who have never paid in.

June 06, 2013 at 11:27 am

"If we are going to raise the base, then we should provide more benefits" I guess that don't count when it comes to government employees retirement plan! Give me a break!

June 06, 2013 at 11:04 am

If congress would put back the 2.7 trillion dollars that was stool. That would be a start in the right direction.More tax for the little guy is not the way to fix SS.

June 06, 2013 at 9:59 am

Get out of here! Another liberal from Boston suggests raising taxes (again) to "fix" something?

Don't worry, you little people will barely feel it. Just shut your cable off or go back to dial-up.

June 06, 2013 at 9:33 am

Seems like no one remembers the Social Security Amendments of April 20th, 1983. Google it. It's a simple read, written in laymen's terms. Remember those who are ignorant of history are doomed to repeat it!

Taxed Enuff
June 06, 2013 at 9:21 am

Agree with Bob Logo - Increase SS taxes a few percentage points, increase sales tax one or two points, increase state income tax a few points, increase property taxes - next thing you know wooola!!! - your income is reduced by 25% - although no one will feel it though because it is only a "small increase" in each one: aka "death by a thousand cuts". Who is this fool?

June 06, 2013 at 9:05 am

Are you kidding me? What school did she go to for that Economics major? Hardly anyone felt the payroll tax cut removal. My monthly take home went down at least $160 a mont. Yeah I think I felt it. Yeah its any easy fix, raise taxes and keep raising them because "hardly" anyone will feel it. Especially those not working for a living. Ri-dic-u-lous!