Description: Proposed New ‘Fix’ for Social Security Hurts Workers and Protects the Rich

How worried are America’s rich about the possibility of being hit with higher taxes for Social Security?

Most, according to the endless creativity of their proposals to improve the financial conditions of the program by cutting benefits instead of collecting money (usually from our very rich taxpayers).

The latest action on this fence comes from the Federal Accountability Committee, which as I explained before is the grandson of the late billionaire hedge fund operator Peter G. Peterson, who was a staunch enemy of Social Security. The committee calls its proposal the “Six-Figure Limit,” which is equally accurate: It would cap annual Social Security benefits at $50,000 for an individual, or $100,000 for a couple.

Make no mistake: This is a small profit. It’s part and parcel of the Republican’s sustainable project and best practices to protect its wealthy clients from paying taxes to pay their fair share of the cost of public programs.

As recently as the event at the White House on Wednesday, President Trump revived the old “guns or butter” debate – it was Lyndon Johnson who said during the Vietnam War that the country could afford both, but Trump said that as long as “we are fighting wars … we will not be able to take care of children, Medicaid, Medicare, all these things individually.”

Trump said those programs should be taken over by states, which would have to raise taxes, allowing the federal government to “cut our taxes.”

The committee says its proposal will only affect the rich, but that is a true reflection of the current situation. About 1.2 million of the 53.6 million retirees receiving benefits today, or about 2.3%, receive enough money from Social Security to exceed the $50,000 annual income limit.

Retirees are typically the ones who earned the highest earnings — $184,500 this year — in nearly every year of their working lives, and choose to delay their benefits until age 70 to get the highest monthly income. We are very grateful for the inflation, however, the cover will enter the middle level with the certainty that the water will find its own level; that may take years, but by the time today’s youngest workers retire, it will be entrenched in the system.

The proposal reflects one of Pete Peterson’s pet peeves, which was the idea that a lot of money could be saved by overhauling Social Security so that billionaires like him don’t get welfare they don’t need.

The Six Figure Limit reads like the godfather of that idea, but as I’ve reported before, the problem with it is that Social Security checks won’t save the program much money unless you start reducing means-tested benefits by as little as $50,000.

The CRFB proposal, as included in the explanatory manifesto posted on its website, does not explain why $100,000 should be the knife, except that it is probably a round number.

“This is a program that, going back to its inception, was a measure of protection against falling into poverty,” Marc Goldwein, the committee’s senior policy director, told CBS News. The fact that an income support program can pay six figures is a little silly.

I asked the committee what is “ridiculous” about a married couple receiving $100,000 from Social Security after they have paid into it their entire working lives, and given that the average household income in the US was $1,071 when Social Security was created in 1935 and today it is $83,730. I didn’t hear an answer.

The committee believes that only “a small percentage of pensioners” currently receive benefits of $50,000 or more today. But the concern is that “the $100,000 benefit will become more widespread as Social Security’s benefit system allows benefits to grow over time.” This is not true: It is economic growth, rather than the benefits system, that does so, by raising average wages.

Public Safety advocates and experts have responded with disdain for this proposal. Nancy Altman, president of Social Security Works, calls it a “Trojan horse.”

It is because of its proposed structure. The committee offers three possible examples: Two would fix the reduction to $50,000 per person for 20 or 30 years. The third would allow it to increase based on the index of the consumer price index, which is a measure of the price of the least used that rises more slowly than the average CPI of the cities.

Either way, Altman notes, “the $100,000 income will continue to shrink to the point where it’s a self-sustaining benefit unrelated to prior incomes, as conservatives have been advocating since 1936.”

The CRFB manifesto is a terrifying document. It asserts that this cap will be helpful for economic growth by reducing federal borrowing and making retirees more dependent on resources such as personal savings and investment income.

This is happening, it says, according to “a large body of research” that found that “employees – especially high-income workers – are increasing their retirement income due to reductions in public pension benefits.” In other words, if you fear that Social Security will be cut, you put more money into your IRA.

That makes sense, but only on the surface. First, what about all but the “high income earners”? Many middle-class and working-class families already struggle to make ends meet, let alone save for college and retirement. Where will they get the money they will need once Social Security is gone?

Second, who says workers save more when they fear cuts to Social Security? The committee provides this explanation to the Congressional Budget Office’s review of 30 studies, conducted in 1998. What did the CBO learn? It was that no one knew.

Other studies, the CBO said, found that each Social Security dollar reduced personal savings, but the reduction was “between zero and 50 cents.” In other words, this event may or may not be real. And if not, this pillar of the Six-Number Limit falls down. People will be returned to non-existent human resources.

The CRFB manifesto has other important reasons. For example, it argues that America’s Social Security benefits are unduly generous around the world. It confirms this result by comparing the benefits in the US in 2024 ($93,452 for a married couple) with those of other developed countries such as France ($69,403 if you buy the same as the US), Canada ($43,608) and the Netherlands ($41,765).

However the comparison is questionable. National pension systems are very different. For example, the French social security program is a mandatory addition to private pensions, unlike the US. In other countries, old-age benefits are part of broader public programs that include health care paid for by the government as well as public childcare and other public services that do not exist in the US. I asked the CRFB to answer these questions, but did not receive an answer.

It is important to remember that proposals like these have one basic goal: to prevent the rich from increasing the Social Security income tax, which is the only way to ensure that the financial legs of the program stand on dry land without reducing benefits.

This year, a tax of 12.4% is levied on wages up to $184,500, with half paid from the wages of employees and half directly by employers. That means workers will pay $11,439, while employers pay the same.

On income above the tax rate, the rate drops to zero. For someone with an income of, say, $500,000, the effective rate for each party drops from 6.2% to 4.3%; for those with incomes of $1-million, it falls to 2.28% on the other hand. Since the tax is only income, wealthy taxpayers get an extra break – half of the income or more for the wealthiest Americans is in the form of investment income, which is not taxed at all for Social Security.

Making so-called passive income part of their tax base and eliminating the tax loophole would improve Social Security’s budget balance beyond the Six Figure Limit, but that would greatly increase the Social Security tax liability of millions and near-millions. This may explain why their cats in Congress and think tanks use so much energy to find other ways to raise taxes.

It’s tempting to put this latest idea on the pile of transparent policies to prevent higher Social Security taxes, but the risk is that policymakers and experts will suggest that $100,000 is too much for a retirement pension. The Washington Post’s editorial board started the process on March 24 with an unscripted op-ed, “Nobody needs more than $100,000 a year in Social Security.”

The piece balanced the generosity of Social Security against the federal government’s $39 billion debt and a federal deficit “larger than during the Great Depression,” as if those were the consequences of providing for 53 million retirees, the disabled and their dependents. The owner of The Post, the founder of Amazon.com Jeff Bezos, is one of the richest men in the world.

However, the post drew the ire of Max Richtman, president of the National Committee on Social Security and Medicare, who informed the board that its title was “based on the lie that Social Security is a social welfare program. It is, in fact, social insurance.”

As he explained, “employees pay into this program and receive payments to replace their earnings when they retire, become disabled or die of a family caregiver.” These are the ‘dangers and great changes in life’ that President Franklin D. Roosevelt spoke of when he signed Social Security into law.”

Richtman is right about Social Security, and the CRFB is wrong. For beneficiaries rescued from poverty in their old age or after disability, the difference is more than rhetoric. It’s a fact of life.