Lift the Income Cap
Byline: The Register-Guard
There is a federal tax problem bigger than the Bush tax cuts over which Congress is in a dither today.
The Bush cuts of a decade ago reduced rates for the personal income tax that is the chief source of revenue for general government purposes. The current battle concerns whether the lowered rates should be extended or allowed to expire at the end of this year, as mandated under current law.
But the biggest tax paid by many Americans is not the personal income tax. It is the payroll tax that supports Social Security. All workers pay 6.2 percent of the first $106,800 of earnings. They pay no tax on earnings above that cutoff.
So far, each year's collections from this tax cover what is owed to retirees and other beneficiaries. But with baby boomers now entering retirement age, the latest estimate is that revenues will begin to fall below the annual requirement by 2037.
That shouldn't happen, because on paper Social Security built up a large trust fund in years when its income far exceeded outgo. But that money has disappeared. It has been borrowed by Congress to pay for non-Social Security needs.
Congress leaves little IOUs in the trust fund piggy bank, but everyone knows they are worthless. Paying back what is owed would take a huge tax increase that would stand no chance of congressional approval or voter support.
But there is another alternative. The amount collected every year could be increased significantly by removing the cap on income to which the payroll tax applies.
Thus, all workers would be taxed on all of what they receive, not just the first $106,800, which itself has been increased periodically.
According to Philadelphia-based columnist Dave Lindorff, a recent study by the Congressional Budget Office showed that if this change were made, "The dreaded wall when current workers' tax payments cease to be enough to pay for current retiree benefits, instead of arriving in 2037, would be pushed back to at least 2075 - a date almost as distant in the future as today is from the founding of the Social Security program. …