Until or unless Obama spells out whether the incidence of this tax falls on non-wage earnings or not the whole proposal is meaningless. And if it does fall on gains from capital you end up with a whole more complicated system of administration instead of the super efficient payroll deduction model we have today.

Social Security does not need more cash income short term. What it could use is some fiscal restraint on the General Fund side and some pay down on debt held by the public so as to make financing redemption of the excess dollars in the Trust Fund easier and cheaper if and when.

To me the whole thing smacks of pandering. The net effect of lifting the cap and applying it to all income would mean an effective rollback of all of Bush II's tax cuts. If we accept the textbook theory that the actual incidence of the employer match falls on the employee then such a cap raise rolls back Bush I's tax cut as well. All to launder extra money through (because it doesn't in real terms go to) a program running large cash surpluses now and for most of the next decade. The whole thing is simply irrational.

Except or unless it is a stalking horse for imposition of Obama advisor Jeffrey Liebman's Liebman-MacGuineas-Samwick Social Security Reform Plan. In which case everything falls into perfect and rational place. LMS in fact does rely on a cap increase to help fund its PRAs.

This I believe is why Krugman raised the alarm to begin with, every time I hear or read about Obama tinkering with Social Security I seem to hear Liebman whispering in his ear.

Dean Baker,

Social Security Is Fully Solvent Until 2046

Even if it were fully solvent FOREVER, we could still reduce our long-term fiscal imbalance by reducing projected SS spending. We could just reduce projected SS spending, reduce SS FICA taxation, and offset the SS FICA tax cut with increases in other taxes. Result: lower projected overall spending, unchanged projected overall revenues, and thus lower projected deficits (lower overall long-term fiscal imbalance).

Right?

Isn't the Social Security Payroll tax just a regressive income tax on people with incomes below $50,000?

Isn't the SS payroll tax is accounting for approximately 40% of all federal tax revenue?

Shouldn't we just dump the whole idea that the SS "payroll tax" is a retirenment plan, and just roll it into the progressive income tax. Ditto for Medicare?

Thanks.

Brooks- You want to replace a progressive tax with...what? and Bruce seems to regard the Bush I and II tax cuts as beneficial to the economy. Obama's "donut" plan makes a whole lot of sense considering the obscene amount of GNP that is siphoned off by these guys.

Jim H,

Not sure what you're asking or why you're asking it. Do you have an answer to my question?

In 2046, the earliest Baby Boomers will be 100 and the youngest (including myself) will be at least 80. Thus, the demographic bulge for which the Trust Fund was established and that (incorrectly) justifies the scare stories essentially will be gone. Why does the Trust Fund need to last any longer than 2046 ?

Brooks wrote, We could just reduce projected SS spending, reduce SS FICA taxation, and offset the SS FICA tax cut with increases in other taxes. Result: lower projected overall spending, unchanged projected overall revenues, and thus lower projected deficits (lower overall long-term fiscal imbalance). Right?

By your reasoning, why don't we entirely eliminate SS spending, eliminate taxes on the wealthy, and drastically increase payroll taxes? After all, all that matters is fiscal balance, not who actually pays taxes or receives benefits. Right?

Brooks wrote, Even if it were fully solvent FOREVER, we could still reduce our long-term fiscal imbalance by reducing projected SS spending.

We could also cut military spending by 50%, and withdraw all US soldiers from overseas.

But such a policy proposal is forbidden.

liberal and Anonymous,

You are mistaking my conceptual point for policy advocacy. My point is that it would be INCORRECT to say that even full, infinite SS "solvency" means we could not reduce our overall fiscal imbalance by reducing SS spending. We COULD indeed do so. My point is not that we SHOULD, only that we COULD, and SS "solvency" does not change that fact. I say this because I see a lot of people saying or implying that if SS is "solvent" then reducing SS spending could not help reduct our overal fiscal imbalance, which is simply wrong. There are legitimate arguments for not reducing projected SS spending, but that is NOT one of them. That's my entire point here.

liberal and Anonymous,

You are mistaking my conceptual point for policy advocacy.

My point is simply that even if SS is/were projected to be fully "solvent" forever, we COULD still reduce our overall fiscal imbalance by reducing projected SS spending. My point here is not that we SHOULD, but that we could. I only say this because many people seem to be operating under the opposite assumption: that SS "solvency" means that SS has nothing to do with our overall deficits and that reducing SS spending could not help reduce overall deficits.

There are obviously other ways we could reduce projected deficits: lower projected spending on Defense, non-Defense discretionary, and other mandatory, as well as tax increases (and I favor all of the above, not that that's relevant to my conceptual point).

sorry for the double post. I thought my first submission was lost, so I tried to re-create it more or less.