Removing the Social Security Tax Cap Would Benefit Most Workers

by Yves Smith

Yves here. As we and others have discussed at some length, the concern over Social Security funding is vastly overhyped. As Nicole Woo discusses in this Real News Network interview, one simple fix, that of eliminating the cap on who is subject to the tax, would solve most of the gap that is anticipated in long-term projections. And the Social Security tax as now constituted is regressive and thus promotes inequality, so lifting the cap also moves the tax system toward being more progressive. That’s before we get to the MMT issue that “taxing” to fund any government activity is a political mechanism that is a holdover from the gold standard days, and not how government functions are funded operationally.

In fact, with more and more promised pensions being slashed, and investment returns flagging thanks to QE and ZIRP, the notion that ordinary people can save enough for their retirement is a chimera. Thus preserving and strengthening Social Security is more important than ever.