This is what many are proposing to
do by raising the age at which you can receive social security
payments. It would seem to make more sense to encourage
older workers to retire earlier rather than create incentives
for them to work longer. Note, no one is suggesting
forcing people to retire. For those who are able and want
to continue working well into their senior years, there should
be no impediments to their doing so. But do we want to
create a system that encourages people to work longer regardless
of their desire.
The argument is that we have to do this to save social
security. Unless we increase the age at which workers can
collect benefits, it is said the system will go bankrupt.
And if nothing else is done that appears to be true. But
there are other alternatives.
Many have proposed eliminating the cap on wages subject to
social security taxation. Currently that cap is
$106,800. It is indexed to match the growth in average
wages. But if we eliminated the cap entirely, everyone
agrees this would create a substantial increase in revenues for
the system. The question is how much.
Since social security benefits are tied to how much you pay in,
eliminating the cap on wages subject to social security taxation
would increase benefit levels to high end wage earners thus
increasing the payout. But there is agreement that the
additional revenues coming is would more than offset the higher
benefits to high end wage earners. The Congressional
Research Service (CRS) in 2010 concluded:
Raising or eliminating the cap
on wages that are subject to taxes could reduce the long-range
deficit in the Social Security Trust Funds. For example, if
the maximum taxable earnings amount
had been raised in 2005 from $90,000 to $150,000—roughly the
level needed to cover 90% of all
earnings—it would have eliminated roughly 40% of the
long-range shortfall in Social Security. If
all earnings were subject to the payroll tax, but the base was
retained for benefit calculations, the
Social Security Trust Funds would remain solvent for the next
75 years.
Congressional
Research Service, Social Security: Raising or
Eliminating the Taxable Earnings Base, September 10, 2010.