Stu Bykofsky: Social Security is OK, for now. But the rich must pay

Posted: November 18, 2010

WE ARE all French now.

The French hit the bricks in a big way recently, but not in the name of liberty, equality and fraternity. They got their frocks in a bunch when the government increased the retirement age from 60 to 62. Quelle horreur!

In Greece, unions went all Zorba when the government moved to hike the retirement age from 61 to 65.

Other governments are taking action, slashing budgets. They're not being mean. Leaders looked at the ledger sheets and discovered that they were broke.

Same thing on this side of the Atlantic, where we think that the retirement age is 65. (It's earlier if you can afford it and later if you can't.)

If you think Social Security benefits begin at 65, you're wrong in three ways.

1. You can elect to get benefits as early as 62, but your check will be smaller than if you wait.

2. You can delay receiving benefits until 70, which increases your monthly check.

3. No one retiring now gets full benefits at 65. Increasing the base age for the "full retirement age" became law in 1983, according to Aidan Diviny, a public affairs specialist in the Philadelphia Social Security office. The change will eventually increase full retirement age to 67, he said; it is currently at 66, and 33.5 million Americans are receiving retirement checks.

A draft proposal from the bipartisan Budget Deficit Commission to rejigger the system has some hysterics in a snit., reflecting the views of some, screamed that the commission "declared war on Social Security."

It did not. Americans won't allow anyone to collapse the system. You think baby boomers, the biggest and most self-indulgent generation in history, would allow anyone to take their stuff? But Americans - especially the rich (who don't need it) - will have to pay some more for it, no matter which "fix" is adopted.

One deficit-commission idea that caused some howls suggested slowly increasing the retirement age from the currently mandated 67 to 69, by 2075.

That's right - 2075. Most of you reading this, plus the person writing it, will be dead by 2075.

The Social Security Act was signed by FDR in 1935, and taxes were collected starting in January 1937. There were 16 workers for each retiree in 1950. By 2015, it will be three workers for each retiree. Something has to give.

Although the system is in "trouble," it is nowhere near bankrupt. Yes, Social Security will start paying out more than it takes in in 2017, but will use interest on the securities it holds (U.S. Treasury bonds) to pay benefits, according to personal-finance writer Liz Pulliam Weston. In 2027, SSA would have to start redeeming the securities themselves, and by 2037 the securities would be gone.

That's 27 years away, so there's lots of time to fix the system.

SSA can be as complicated as Vulcan 3-D chess, but I can make it simple: Expect good changes if you are small, bad changes if you are big.

In broad outline, the commission foresees reducing cost-of-living increases. (Retirees got a zero increase this year because of the flat economy.) It would reduce benefits slightly to the middle class in later decades, according to a New York Times analysis, but low-income people would get increased benefits.

That's already happening - and should. A government check might be the only money they get.

I have a fix that would be painless - except for the very rich and super-rich (who don't need the SSA check for anything other than tipping their cabana boy).

Right now, you and your employer each send 6.2 percent of your paycheck to Social Security. But the tax is capped at $106,800 of earnings, giving the rich a big fat break. The commission would raise the cap to $175,000. I'd remove it.

Since median personal income for Americans 18 and older is about $26,000, the overwhelming majority of Americans feel the SSA tax bite 52 weeks a year.

Multimillionaires don't. They pay for a week, maybe two. If the top 1 percent of Americans - with about 20 percent of the income - paid the tax every week, like you and I do, wouldn't that float the system?

Yes, says La Salle University economics professor David George, who has studied the Social Security system. "It would be a tremendous way to solve some of the difficulties."

Why should the Social Security tax be different from income tax?

Let the rich pay all year like you and I do.

What's unfair about that?

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