With the federal government $39 trillion in debt and running deficits larger than during the Great Depression, there’s no reason that the largest federal spending program should be sending six figures in annual benefits to rich people. Yet that’s exactly what Social Security is set to do.
Starting this year, the Social Security benefits formula gives the very highest-income couples who retire at age 67 over $100,000. While few will receive that now, their numbers will only increase as time goes on and the formula, which raises benefits faster than consumer price inflation, keeps boosting payments.
Though it won’t fully address the program’s long-term sustainability, capping benefits for the richest seniors would help restore sanity to a program millions of Americans depend on. The Committee for a Responsible Federal Budget is proposing what it calls the “Six Figure Limit” to ensure that no couple who retires at the normal age receives over $100,000 in annual benefits.
The Six Figure Limit is the right idea for a program that currently pays about one-third of benefits to retirees with incomes over $100,000. The wealthiest members of the wealthiest generation in human history do not need more government largesse, and neither will the top end of the distribution in future generations.
Even by French standards, a wealthy retired couple receiving nearly six figures from a national pension program is absurd. A more typical maximum public benefit for a retired couple in the developed world is between $30,000 and $40,000.
Politicians have told seniors that they are simply getting back the money they paid in, but that’s not true. The government already spent the payroll tax money retirees paid during their careers. The money retirees receive today is funded by a combination of taxes on workers, who are on average poorer than retirees, and debt. It is a strange sense of morality which says that because the government lied to past generations it is bound to continue lying to current and future generations.
Capping benefits is a better way to reform Social Security than increasing revenue. Social Security today spends over 5 percent of gross domestic product. Canada’s public pension program spends about half as much as a share of its GDP, and Sweden’s spends under 1 percent.
Removing the income cap for the Social Security payroll tax would take the top marginal tax rate on wage income to among the highest in the world when average state and local income taxes are included. If the government is going to raise taxes so dramatically, it would be foolish to use all that money solely to fund benefits for disproportionately wealthy seniors.
The larger goal should be to follow the example of other countries that have successfully reformed their public pension programs: Create a flat benefit to keep all seniors out of poverty, with means-tested benefits on top of that. And remember that the ultimate provider of retirement security is hard work and private investment, not Uncle Sam.
The post Nobody needs over $100,000 per year in Social Security benefits appeared first on Washington Post.
