How to Fix Social Security

by John M Repp

In 2032, Social Security benefits will be cut by about 25% if Congress does not do something. That will be the first time since the system was set up that some payments going out will be less than what a recipient had received before. Also, since the system was set up, the age at which a person can start collecting has been raised. Today many young people believe that Social Security won’t be there for them when they retire.

Currently, Social Security is funded by a tax on wages as well as a tax on the employer. Both pay 6.2% of the wages/salaries of the employee. The taxes apply only to annual earnings up to $184, 500. That is the “cap”.

“ Scrap the Cap” is a proposal to fix any future shortfall. It is primarily a tax reform. There are several “Scrap the Cap” proposals. One is simply to eliminate the cap, so annual earnings above $184,500 will be taxed like annual earnings below the cap.

Nick Hanauer has proposed a second—and, in my view, much better—“scrap the cap” plan. Wealthy people earn income not only from wages but also from capital gains, dividends, and business profits. Under Hanauer’s proposal, all forms of personal income would be taxed. This change would prevent Social Security benefits from being cut in 2032 while eliminating the employee’s 6.2% payroll tax, effectively increasing every wage and salary earner’s take-home income by 6.2%.

I think this concept of “scrap the cap” if more widely known and understood would be so popular that at least the progressive caucus in Congress would push for its approval. Hanauer has many videos and TED talks where he explains how our economy has changed since the 1930’s. He has published a book only available on the Internet: https://www.marketsbuiltforhumans.org/