How Income Inequality Undermines Social Security

Merrill Goozner

Published 10/31/11 in The Fiscal Times:

The income gap between the wealthy and everyone else has grown sharply since 1979, the Congressional Budget Office reported last week, while the Social Security trustees pointed out last June that for the first time since the early 1980s, the nation’s retirement system will dip into its interest earnings to pay the bills.

Although at first blush these two facts seem to be unrelated, they are intimately connected. Nearly 40 percent of the Social Security shortfall can be directly traced to the growing share of the nation’s total wages that are going to people in the upper income brackets.

Why does the uneven distribution of wage growth matter for Social Security? Each year, the Social Security trustees raise the level of wages subject to taxation by the average wage increase. But when people in the top income brackets get raises that are significantly higher than average while the bottom 80 percent get raises that are below average, a smaller portion of the total wage pie gets taxed.

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The Pointless Debate over the Social Security Trust Fund

C. Eugene Steuerle

First published 3/24/11 on The Government We Deserve

Once again, policy-watchers and policymakers are fired up over whether Social Security needs to be fixed anytime soon. Some resort to pretty arcane debates over the trust fund to make their point. Won’t it take years to exhaust the trust fund? Are the bonds in the trust fund real? Is the trust fund a fiction? Was the trust fund raided? You know, it scarcely matters. All these debates are over a tiny sliver of the Social Security System—not over where the real action is.

What does matter is that Social Security expenses are expected to rise by about 50 percent—from about 4.3 to 6.3 percentage points of GDP—from 2008 to 2030, and taxes aren’t. As the baby boomers retire, higher expenses and less tax revenue mean that the national deficit will rise year after year.

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