John Kensinger on Social Security and Medicare
Older Americans face two uncertainties. The first uncertainty is the stability of their post retirement income in a down economy. Second is the future funding available for Social Security and Medicare as more baby-boomers begin utilizing these programs. Many older Americans have seen their investments and 401(K) Plans decrease in value due to the recession. Adequate funding for Social Security and Medicare will be a challenge, as the number of people utilizing these benefits will increase geometrically in the years ahead.
The President has proposed cutting the employee contribution to Social Security from 6.2 percent to 3.1 percent. This cut will result in a decrease of 275 to 400 billion dollars in revenue going into Social Security. Social Security has been paying out more in benefits than it has been bringing in since 2010. This cut in funding makes no sense when Social Security is currently losing money.
I propose two solutions to expand the tax base supporting both Social Security and Medicare.
First, provide a tax incentive for people to work full time beyond age 65, therefore, increasing the number of individuals paying into the Social Security and Medicare programs. I propose cutting the Federal Income Tax by two thirds on Americans who work beyond age 65 while keeping the FICA tax the same. This tax incentive will provide Americans with compromised retirement savings, a means to accumulate savings, and enjoy a better standard of living. The number of individuals choosing to work beyond age 65 will increase, thus increasing the revenues coming into Social Security and Medicare.
Second, eliminate the Social Security Wage Base, which is a cap on taxable wages. For the fiscal year 2011, Americans will pay Social Security tax on the first 106,800 dollars they earn per year. This is the Social Security Wage Base. In other words, individuals earning above 106,800 dollars, only pay Social Security tax on the first 106,800 dollars they earn. Wage earnings above 106,800 dollars are currently not taxed.
I propose removing this cap in taxable wage earnings. Then offer a 5 percent Social Security tax credit to those individuals choosing to opt out of the Social Security system permanently. Individuals earning above 106,800 dollars that currently don’t pay Social Security tax on earnings above 106,800 dollars, will now contribute 6.2 percent into the system.
Those choosing to opt out of Social Security will get 5 percent of their earnings back to invest or use as they wish. Individuals selecting the 5 percent rebate will still pay 1.2 percent into Social Security since current tax is 6.2 percent.
These two proposals will increase the tax base supporting both Social Security and Medicare. The additional revenue generated will preserve and stabilize the financial future of these two programs.
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