(H/T – Dad29)
Last week during his Henderson town hall meeting, Barack Obama floated the idea of getting rid of the cap on the FICA/SECA taxes that go toward Social Security as a way to make it solvent for a bit longer. As Dad29 notes, that would be a significant increase in the marginal tax rate (for those of you in Rio Linda or West Palm Beach, that’s the amount of tax paid on the last dollar made) for those making more than $106,800, which is a lot less than the $250,000 Obama promised would not see a single tax increase, including very-specifically a payroll tax increase. Specifically, it’s a 6.2-point increase for those with an employer (with said employer being dinged that same 6.2 percent), and a 12.4-point increase for the self-employed. Assuming the Bush tax cuts are allowed to expire on schedule, that would make the effective self-employed (i.e. small-business) top federal tax bracket 54.9%, and the employee top federal tax bracket 47.25%.
Item number two, almost thrown away, is an admission that Social Security is now likely to exhaust its combined “Trust Funds” somewhere around 2030, a significant move up from last year’s projection of 2037 (with the OASI fund projected to be exhausted in 2039 as of last year and the DI fund exhausted by the end of this decade). That would match the “high-cost” case from last year’s Trustee Report.
As for Obama’s claim that eliminating the cap would make Social Security solvent long into the future, let’s take a quick look at that. Assuming that it has no effect on on the economy, removing the cap would increase the FICA/SECA tax take by roughly 21%. Some very-back-of-the-envelope number-crunching refreshes my memory of a semi-forgotten study that found that lifting the cap entirely would only delay the inevitable decline and collapse of Social Security by roughly 15 years. Ever-so-conveniently, that would move fund exhaustion barely beyond Obama’s life expectency.