Rep. Ted Deutch: Tax the rich to extend Social Security

Rep. Ted Deutch, D-Boca Raton, calls for extending Social Security payroll taxes to incomes above $127,200. (George Bennett/The Palm Beach Post)

With Social Security facing solvency problems in less than 20 years, U.S. Rep. Ted Deutch, D-Boca Raton, is reintroducing his bill to extend the life of the program by hitting higher-income earners with a payroll tax increase.

Don’t expect Deutch’s plan to get anywhere in the Republican-controlled House. His similar bill in the last Congress never got a hearing, and the chairman of the Ways and Means Social Security Subcommittee — Rep. Sam Johnson, R-Texas — was dismissive of the concept at a hearing last week.

Workers and employers each pay a 6.2 percent payroll tax — or a combined 12.4 percent — on earnings up to $127,200 to finance Social Security retirement and disability benefits. Deutch’s bill would eliminate the cap, making all income subject to Social Security taxes.

(In addition to the Social Security tax, workers and employers each pay a 1.45 percent tax — or a combined 2.9 percent — to pay for Medicare. There is no cap on income subject to the Medicare tax.)

Social Security Trustees report released last week estimates that, if no changes are made to the system, Social Security will only be able to pay 93 percent of promised disability benefits beginning in 2028 and will only be able to pay 77 percent of promised retirement benefits beginning in 2035.

That means a person who is 49 years old today would see about three-quarters of promised benefits when he or she reaches the retirement age of 67.

So revenue increases or spending reductions are needed to preserve Social Security’s long-term viability. Some Republicans, including Republican Florida Sen. Marco Rubio, have proposed gradually increasing the retirement age for younger workers — but not current beneficiaries or those nearing retirement — to extend the program’s solvency.

The Social Security trustees don’t recommend a course of action in their report, but urge Congress to act soon.

“The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them,” the new report says. “Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits and could preserve more trust fund reserves to help finance future benefits.”

Subjecting all income to the Social Security tax would make the retirement program solvent through 2067, Social Security Chief Actuary Stephen Goss said at a Ways and Means hearing last week. The program’s expenditures would begin exceeding revenues in 2026, he said, and would draw on reserves to pay benefits for the next four decades.

“So even if we get completely rid of the taxable maximum, the program will be running cash-flow deficits within the next decade, is that true?” Subcommittee Chairman Johnson said. “That sure doesn’t get us much and as I’ve said before we clearly can’t tax our way to solvency.”

In addition to his proposal to make all income subject to the payroll tax, Deutch’s bill proposes to make annual cost-of-living adjustments more generous to retirees by using a Consumer Price Index for seniors, called CPI-E, instead of the CPI-W formula currently in use.

The CPI-E, as calculated by the federal Bureau of Labor Statistics, places more emphasis on housing and medical costs than the regular CPI formula. For the 30 years ending in 2011, CPI-E  increased by an average of 3.1 percent per year rather than 2.9 percent a year for CPI-W.

Sen. Mazie Hirono, D-Hawaii, has introduced companion legislation in the Senate.

“I’m proud to once again join with my friend Senator Hirono to re-introduce this bill,” Deutch said in a statement released by his office. “Social Security is a fundamental program that protects millions of American workers’ economic security. It protects retirees, people with disabilities, and families who have lost a breadwinner. Yet, with President Trump willing to break his promise of protecting Social Security from cuts, and with ongoing threats to the program from Congressional Republicans, it’s more important than ever to fight for Social Security. We are standing with the American people who want Social Security protected and strengthened, not weakened. For many of my constituents, Social Security is the only thing keeping them from having to choose between medicine and a meal. Our bill bolsters Social Security to continue its success as the most efficient, effective, and popular promise we make to our fellow Americans.”

A budget plan released by House Republicans this week does not specifically address changes to Social Security retirement benefits, but calls for savings in the Disability Insurance program by eliminating payment of both unemployment and disability benefits to a recipient.

 

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