OPINION: Eliminating Social Security Cap Turns Seniors Into Political Pawns
Any debate about Social Security will at some point devolve to five words: “Raise the cap, problem solved.”
There are two things that you need to know about this slogan.
- It is false; and
- Even if it were true, the policy option is simply a bad idea.
According to the Congressional Budget Office and the Social Security Administration, completely eliminating the cap solves about 50-70% of the financing gap, which is about halfway to the meaning of the word 'solved.'
The larger problem is that eliminating the cap is not a good idea. The more Social Security looks like welfare, the more the program will simply become a political priority in which the needs of the elderly are subjected to the mercy of politicians. Does that really sound like a good idea?
FDR didn't think so. In 1934, he wrote, "We must not allow this type of insurance to become a dole through the mingling of insurance and relief. It is not charity. It must be financed by contributions, not taxes." He did not want Social Security to become an income transfer, not from rich to poor and not even from child to parent. He vigorously opposed these ideas, and even vetoed legislation that undermined his concept of a self-sustaining program.
The difference is a question of whether revenue collected by Social Security is a tax to pay for welfare or a contribution to pay for insurance. Today, it is difficult to call this revenue a tax.For the most part, when you contribute a dollar you get a promise of a dollar in the future. That isn't a tax - it is a loan. If you feel that you will not collect the dollar, the loan may be a junk bond, but it is not a tax. As long as there is the promise to be repaid, Social Security is a contribution.
Social Security is progressive. The more you make, the more your benefits will cost. Progressivity means that by the time that you are affected by the cap, any incremental earned benefit is negligible. The benefit provides little more than a rebate to reduce the cost. At the cap, Social Security is more of a tax than a contribution. So removing the cap will draw in the tax revenue that FDR opposed.
Roosevelt worried that this type of revenue subject benefits to non-programmatic events. Every dollar raised by removing the cap could be used for other priorities, such as lowing the debt for example. FDR didn't want the needs of the elderly to have to compete with other political priorities like student loan reform. He wanted a system that was self-sustaining, independent of politicians.
FDR lost, and the argument will follow that removing the cap is simply another step in a long journey of a living concept. We abandoned FDR's vision half a century ago, and this step is a necessary part of the transition. The reasoning is the manifestation of Will Roger's theory, "If Stupidity got us into this mess, then why can't it get us out?"
We are going in the wrong direction. Yes, FDR lost, but he was right. Roosevelt wanted a system in which benefits were earned insulated from politicians like Bernie Sanders and Jeb Bush who want the power to control how the resources of Social Security are distributed. It is about the power, not the principle of what Social Security should do.
Politicians would of course like nothing more than the power to create benefits by magic. Jeb Bush wants to give every poor retiree a raise. Senator Elizabeth Warren would like to give every senior a raise this year. Senator Bernie Sanders would like to give every senior a raise forever. Their visions may differ, but all of these people want the benefits of Social Security to be a measure of political power rather than a result of contributions to a contributory benefits system.
This system can have only one outcome: politicians bidding for their election with our money. Is that a good idea? Do we want the elderly to be just another political priority?
We may not get back to the self-sustaining system that FDR wanted. We may have to inject tax revenue. We may have to make benefit adjustments as well. Before we do, we should be talking about how these changes will affect the program on which millions depend.