Shenna, Susan, and Social Security

DEMOCRATIC challenger Shenna Bellows earlier this week proposed to raise the payroll tax as a means to secure Social Security’s solvency.  From Christopher Cousins at the BDN:

Bellows, who trails Collins — a popular incumbent seeking her fourth term — in both the polls and campaign fundraising, said she favors eliminating the payroll tax cap on contributions to Social Security, which has everyone with an income above $113,700 per year paying the same amount.

Bellows also supports pending legislation known as the RAISE Act, which would impose a 2 percent payroll tax on all earnings over $400,000 per year in order to increase Social Security benefits for widows and widowers, divorcees and children of disabled adults.

In response to Bellows’ proposal, Cousins quoted Lance Dutson, Collins’ campaign spokesperson:

The Collins campaign responded that in her role as the ranking Republican on the Senate Special Committee on Aging, Collins is in the midst of exploring how those cuts will affect administration of the program.

Collins campaign spokesman Lance Dutson said that in January, Collins introduced legislation called the Retirement Security Act of 2014 to encourage small employers to offer retirement plans, spur employees to save more for retirement and ensure that low- and middle-income earners are able to claim tax benefits for retirement savings already in law.

“Shenna’s ideas are short on facts and practical solutions,” said Dutson. “Her confusing scatter-shot approach proposes billions in additional spending and fails to ensure the solvency of America’s Social Security system. The Budget Control Act that she criticizes passed the Senate 74-26 with the support of nearly all Senate Democrats, including Harry Reid, and was signed by President [Barack] Obama. It prevented the United States from defaulting on its debts, which would have imperiled Medicare and Medicaid payments to our seniors and, ironically, Social Security.”

The problems with Social Security’s solvency are well known, with the program projected to be unable to pay full benefits come 2034.  Together with raising the payroll tax, other policy measures proposed by various lawmakers to help keep the program solvent include raising the retirement age (a policy that is already in place), changing the benefits formula to determine benefits, adopting the chained-CPI, means testing the program, and increasing the FICA tax.

As for Bellows’ plan, while it is not without its own problems, the problem Dutson alludes to is overstated.   Specifically, Dutson states that “[h]er confusing scatter-shot approach proposes billions in additional spending and fails to ensure the solvency of America’s Social Security system.”  This is likely in regards to the programs formula for paying out benefits.  Basically, the more one pays, the more one receives, so every $1 increase in FICA taxes collected would not mean a net of $1 as some percentage would be paid out in benefits.

However, increasing the FICA cap is not revenue neutral because Social Security benefits program is highly progressive.  As a result, as a November, 2013 CBO report on the fiscal impacts of raising the cap notes:

This option would increase the taxable share of earnings from jobs covered by Social Security to 90 percent by raising the maximum taxable amount to $177,500 in calendar year 2014.

. . .

Because Social Security benefits are tied to the amount of earnings on which taxes are paid, however, some of the increase in revenues from this option would be offset by the additional benefits paid to people with earnings above the maximum taxable amount under current law. On net, the option would reduce federal budget deficits by an estimated $460 billion over the 10-year period.

So, yes, increasing the cap would result in higher outlays, but it is not a revenue policy.

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John Haskell

About John Haskell

John graduated from the University of Southern Maine with a degree in Political Science, and from the University of Maine School of Law. He has worked in both the public and private sectors, and currently, works with a small business services company in the Mid-Coast area.