To save Social Security and Medicare, should employers pay higher FICA taxes?
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From the pages of In Business magazine.
Welcome to "Political Posturing," featuring opposing views on current issues important to Wisconsin's business community. In this column, small business owner Brad Werntz and blogger David Blaska offer their opinions from the left and the right, respectively.
Yes, because benefit cuts alone will not be enough.
By Brad Werntz
Yeeesh, Social Security and Medicare? They are hot-button issues — political no-man’s-lands: Who in their right mind would touch them? Only radical Leftists bent on destroying apple pies and Fourth of July, #amiright?
Well, maybe not: The last president to push a major reform to Social Security was that well-known socialist, Ronald Reagan. He did so — no less — in his first term (1983) just before starting the campaign for the next election. (I think he won that one …)
Little wonder: Most Americans oppose cuts to Social Security benefits, and they support contributing more to the program in taxes. Accordingly, Reagan made Social Security solvent for 50 years with a balanced package of reforms, including both tax increases and benefit reductions.
Note that the cuts he put into place were phased in over 40 years, and they won’t take full effect until 2022. While purported fiscal hawks such as Mitch McConnell and Ted Cruz like to rattle their sabers about sweeping benefit cuts, the truth is they won’t make cuts for current or nearly-there retirees because that’s political suicide. So, significant and immediate savings from benefit cuts are unlikely. Instead, we’ll need to increase revenues to make the programs solvent, and it makes the most sense to do that with an increase in payroll tax rates, including FICA.
Why? Because it’s fair: Changes to the tax rate would impact all workers equally and would not change benefits. Just by itself, increasing rates could close the entire solvency gap for Social Security alone; even a modest change of 0.3 percentage points each for employees and employers (or less than $3 per week for an average earner), could close about 20 percent of the gap.
Sure, some say it’s impossible. But since Reagan’s reforms, Social Security has collected more in revenue each year than it pays out in benefits. Fast forward to today and we now know that Social Security’s costs will grow in coming years as baby boomers age into their retirement years and live longer.
If this isn’t solved, Social Security’s combined trust funds will be exhausted in 2034. It seems obvious: Cuts alone won’t get us there, so we need to raise revenue.
Brad Werntz is a small business owner in Madison.