Let’s look at some common-sense fixes for Social Security
I like George Will, not so much for his conservative views but because he is a great fan of and writer on baseball. His 1990 book, “Men at Work; The Craft of Baseball,” is a classic that every baseball fan should read.
But let’s engage in the discussion that Will called for about Social Security, in Monday’s Modesto Bee.
Will correctly points out that a higher percentage of Americans now receives Social Security. He might also have pointed out that when Social Security began in 1935 and the retirement age was 65, average life expectancy was below 65. By 2017 the average life expectancy was 78.6 years.
But Will fails to mention what to me is the real problem: the higher one’s income, the lower the percentage of one’s income goes into Social Security. Let’s see how that works out.
The 2020 maximum Social Security tax rate is 6.2% of $137,700, or $8,537..
In 2019, median household income in the U.S. was $68,703, up 6.8 percent from the 2018 median (as many households surpassed that amount as were below it) of $64,324. So, a family that earns $68,703 pays 6.2% of their total income in Social Security taxes, or $4,259. (Self-employed people pay 12.4%, and Medicare is another issue: The standard Medicare tax is 1.45%, or 2.9% if you’re self-employed. Taxpayers who earn above $200,000, or $250,000 for married couples, will pay an additional 0.9% toward Medicare.)
Let’s see how this plays out in real terms.
The salary range for state judges in California is $92,000 for the lowest 20% to $202,000 at the top. The median income is $193,000. A judge at median salary still pays $8,537, but that is only 4.4% of his or her income.
But let’s take a movie executive, or an athlete, who earns $20 million per year. That person also pays $8,537, but for that person it is only 0.00043% of his or her income, i.e., essentially nothing. (Of course, if one paid more into Social Security then that high earner should receive higher benefits. But there are still a lot of people who die before 78.)
Let’s take a personal example, comparing me in 1995 (then teaching my 24th year at Stanislaus State) to Michael Jordan (then still playing basketball), when the maximum Social Security taxable amount was only $61,000. I really liked those years because I’d paid the maximum 1995 tax by October, so that my November and December checks were higher. But I was paying the same Social Security tax as Michael Jordan, who was earning about $4 million.
One proposal to help Social Security is raising the minimum age to 67. Based on current life expectancy, however, perhaps that should be raised to 69 or 70, so that many Americans would pay more into the fund, and usually when their incomes are at their highest level.
That would help, but in my opinion the best approach would be for an individual to pay 6.2% of one’s entire income, which would bring in much more money. Hence, in 1995 when I paid $3,782, Michael Jordan would have paid $284,000.
Therefore, one way to increase the long-term viability of Social Security is to make reasonable changes that would bring more money into the Social Security Fund.