Social Security Thriving – Oh Really?
“Not to worry” about the fiscal fiasco known as Social Security. So saith Senator Herb Kohl (D-WI) via the official report recently released by his Senate Special Committee on Aging, which calls for “modest” changes to Social Security in the near future to bring its long-term financing into balance and improve benefits.
“This report shows that, contrary to popular belief, the sky is absolutely not falling for Social Security. By implementing one or more of these modest changes, we can ensure solvency and even strengthen benefits for those who count on their monthly check the most,” notes Kohl.
And we bet you didn’t know this: “Social Security has never been responsible for one penny of the federal deficit,” according to Kohl, “and by law is barred from doing so. In fact, it has been in surplus every year since its inception.”
So what are some of Kohl’s proposed “tweaks?” How about we start with “options to consider broadening the revenue base for Social Security,” occasioned by the assertion that “many of the sources of non-taxed income disproportionatly benefit upper income individuals.” Since some sources of income are not presently taxed, then let’s tax them! Very simple. And here, Kohl means:
- Earnings above the tax cap (about 17% of aggregate earnings);
- Earnings of workers not covered by Social Security (like state and local government employees);
- Non-taxable fringe benefits paid by employers, such as–yes, you heard it here first–health insurance premiums, pensions and most other employee benefits. (What a surprise that democrats like Kohl consider this little nugget a “tweak,” right?)
- Employees’ tax-favored contributions to “salary reduction” plans for purposes other than retirement (such as out-of-pocket spending for health care, child care, or work expenses).
And how about a “tweak” which might modify the Social Security tax “cap,”
presently established (in 2010, anyway) at $106,800 of earnings? “If all earned income above $106,800 a year were subject to Social Security contributions but did not count toward benefits, Social Security would be solvent throughout the long-range projection period” notes Kohl’s report.
What a surprise.
And how about an option to use progressive taxes to cover Social Security’s “legacy costs?” Like, f’rinstance, dedicating estate tax revenue at the 2009 level to Social Security? Kohl and his minions note that revenue from the estate tax could be used to cover part of Social Security’s legacy costs. In 2009, the estate tax applied only to the value of an estate in excess of $3.5 million not left to a spouse. Values above that were clipped at a 45% tax rate, allowing heirs to succeed to the other 55%. But Kohl suggests that preserving the estate tax into the future, and dedicating the revenue from the tax with the 2009 level of exclusion and tax to Social Security, would reduce the long-term deficit (What – we thought there wasn’t one?) by 0.51 percent of payroll, thereby eliminating about one fourth of the deficit (There’s that word again.).
You get the picture – just as beauty is in the eye of the beholder, tax increases of any sort are merely “tweaks” in the eye of a Democrat.
CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation.
Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He is also a contributor to the recently published 13th edition of Tax Savvy for Small Business, published by Nolo. He can be reached at 831-7288, and welcomes comments at below.
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