Expanding Social Security for the rich (Huh?)

By Andrew G. BiggsOpinionFOXBusiness

Social security: Democrats push to increase the retirement program benefits

California Congressman John Garamendi (D) on the Democratic agenda of expanding social security benefits.

Consider two groups of Americans: one group’s incomes have risen by 4 percent above inflation over the past two decades, according to Federal Reserve data; the second group’s incomes rose by 84 percent. So what’s the proposal from over 200 House Democrats? To raise taxes on the first group to pay higher benefits to the second.

Continue Reading Below

Those two groups are working-age households and retirees, and over 80 percent of House Democrats have co-sponsored legislation – the Social Security 2100 Act – that would do precisely as described: raise taxes on working-age households who have seen only skimpy income growth in order to “expand” Social Security benefits for retirees whose incomes have risen rapidly.

MORE FROM FOXBUSINESS.COM...

We all know Social Security faces a funding shortfall, driven by low birth rates and rising life spans. Today, however, newly-emboldened Congressional Democrats don’t merely want to fill the Social Security funding gap with new taxes. They want to raise taxes enough to expand the program’s benefits, for rich and poor alike.

No one denies that some retirees are falling short, and many proposals exist to help them. I’ve argued for a true minimum Social Security benefit that ensures that no retiree lives in poverty. So the question isn’t whether Social Security should boost benefits for the poor. Democrats and Republicans agree that it should.

The question is whether Social Security should pay higher benefits to middle class and rich retirees as well. Despite claims of a looming “retirement crisis,” there’s simply no evidence that middle and upper-income retirees aren’t able to maintain their pre-retirement standards of living.

Contributions to retirement plans like 401(k)s are at record highs, as are the assets held in these plans. More retirees are collecting benefits from private retirement plans than at any time in history. Retirement incomes are rising and poverty in retirement has been falling, to a level far below poverty rates for working-age households and children.

The Social Security 2100 Act would fund these expanded benefits in two ways. First, the 12.4 percent Social Security payroll tax – which is already the biggest tax paid by most households – would be increased to 14.8 percent over the next 24 years. That’s a nearly one-fifth increase in the payroll taxes deducted from each working family’s paycheck, money they use to pay bills and save for the future.

Second, the Social Security 2100 Act would phase out the wage ceiling on which payroll taxes apply. This payroll tax ceiling, which has existed since Social Security was founded by President Franklin D Roosevelt in 1935, exists for a reason: as Bill Clinton reminded us during the late 1990s, high earners already pay higher income tax rates.

In 2015, according to the Congressional Budget Office, middle class households paid 14.9 percent of the incomes in total federal taxes. The top 1 percent, by contrast, paid 33 percent of their income to the federal government. The Social Security 2100 Act would effectively increase the top marginal tax rate by 14.8 percentage points, giving the United States one of the highest top tax rates in the OECD.

Yes, Social Security needs to be fixed – and soon, since the trust funds may run out as soon as 2031, according to the CBO. And yes, the Congressional sponsors of the Social Security 2100 Act deserve credit for putting their names to a reform plan. Reformers who disagree with them shouldn’t attack their motives.

CLICK HERE TO GET THE FOX BUSINESS APP

But Social Security needs targeted reforms, not an across-the-board benefit increase for many retirees who already are doing well.

Andrew G. Biggs is a resident scholar at the American Enterprise Institute. He previously served as the principal deputy commissioner of the Social Security Administration, as well as working on Social Security reform at the White House National Economic Council during the George W. Bush administration.