Our nation’s ability to project itself into the future is linked to its fertility rate, which is falling fast. This should not be surprising, because the federal government takes trillions of dollars every year from working-age, fertile people and gives the money to infertile seniors. Now Sens. Bernie Moreno (R-OH) and Elizabeth Warren (D-MA) want to make the problem worse by passing one of the largest tax hikes on working-age people ever: $3 trillion over 10 years to keep increasingly generous benefits flowing to the elderly.
It would be, at best, a temporary and partial solution. It would also make the underlying problem worse by transferring even more wealth away from those able to have children to those who cannot.
Social Security is perhaps the most popular and successful federal program in U.S. history. Before it was passed in 1935, more than a third of seniors lived in poverty. Today, fewer than 10% do. Almost three-fourths of the public believes Social Security is the most important federal government program, and 96% say it is important.
But after decades of benefit increases, Social Security does more than lift seniors out of poverty. It helps fund comfortable lifestyles for millions of middle-class and wealthy retirees. The poverty line for a single person living alone is $1,330 per month. The average Social Security payment is $2,083 per month, and the maximum Social Security payment is $5,181 per month. That translates to hundreds of billions of dollars the federal government spends every year beyond what is needed to alleviate poverty among the elderly.
Moreno and Warren are right to call for action before the Social Security Trust Fund runs out of assets to pay full benefits, which actuaries say will happen during the first term of the next president. But their solution, eliminating the cap on the Social Security payroll tax, is an unprecedented approach that will make the underlying problem worse.
Currently, employees and employers each pay 6.2% on wages up to $184,500 into the Social Security system each year. Self-employed people pay 12.4%. Any wages earned beyond that $184,500 are subject to federal income tax but not the Social Security payroll tax.
The money taken out of each worker’s paycheck is fed into a statutory formula that determines how much each worker is paid when they retire. The more you pay in during your lifetime, the more you get out as a retiree. It is from this formula that the benefit cap is produced. Since no one pays beyond the tax cap, the tax cap also functions as a ceiling on benefits paid.
The Moreno-Warren op-ed says they want to eliminate the payroll tax cap while “safeguard[ing] Social Security’s earned-benefit structure.” If that is true, the plan would also eliminate the maximum benefit cap. Not only would their plan be a massive tax hike, but it would also be a massive government spending increase, since Social Security benefits paid to any one retiree would no longer be capped.
Even with this massive tax hike and spending increase, the Moreno-Warren plan would cover only half of the Social Security system’s shortfall. The rest would have to be borrowed, raised from other taxes, or covered by spending cuts. It is possible that Moreno and Warren plan to keep current maximum benefit levels while eliminating the tax cap, but this would sever the relationship between what workers paid into the system and what they get out.
Even if Moreno and Warren plan to keep the benefit cap where it is, their plan would still cover only 70% of the shortfall. More revenue or spending cuts would be needed.
This is not the first time Social Security has faced insolvency. First in 1977 and then again in 1983, the system approached bankruptcy. In response, Congress raised taxes and cut benefits. The Moreno-Warren plan would be unprecedented because it proposes to fix Social Security through tax hikes alone. Raising taxes on working-age people without cutting benefits would inflict further damage on the system.
The biggest reason Social Security is going bankrupt is America’s declining fertility. In 1983, when the last major reforms were passed, the birthrate had hovered around replacement level — 70 births per 1,000 women of childbearing age per year — for more than a decade. That began declining in the mid-1990s and has never recovered. Today, it stands at 55 births per 1,000 women. Because of this, there are far fewer workers supporting more retirees than demographers predicted in 1983. That is why the system is failing.
CALIFORNIA’S ILLEGAL IMMIGRANT WELFARE PARADISE
Instead of raising taxes on working-age people, we should cut them. By all means, get rid of the Social Security payroll tax cap, but at least some of that revenue should be used to lower the tax burden on those who are working and want to start a family. On top of that, like every other Social Security fix we have had, benefits should be cut. There is no reason people early in their adult lives should be funding the retirements of wealthy seniors.
Social Security must be saved, but not by asking families to bankroll richer retirements. A serious reform would protect the poor, trim benefits for the wealthy, and leave workers with more money to marry and have children.