Could eliminating tax exclusions fix Social Security Disability?

As the economy continues to falter and the number of Social Security Disability claims filed in Oregon and other states continues to rise — projections about the solvency of Social Security and its disability programs grow ever more bleak.

Yet Congress continues to sidestep the issue, focusing on the almost non-existent problems of fraud, waste and abuse in the Social Security Disability system rather than on solutions to the very real financial problems it will be facing a few years from now.

In an editorial page letter recently published by The New York Times, retired Georgetown University business school professor James Abert made his case for a different approach.

Abert begins his argument by questioning the fairness of continuing to exclude wealth-based, “unearned income” such as capital gains, rent, stock dividends and interest from Social Security and Medicare taxes — and “earned income” in excess of $110,100 from Social Security tax as well.

While acknowledging that allowing those tax exclusions may have enabled President Franklin D. Roosevelt to build the political consensus he needed to create the Social Security Administration in the 1930s, Abert suggests it’s time for a change with numbers that are hard to argue with.

According to his calculations, elimination of these tax exclusions combined with a positive economic year (such as 2007, for example) could almost double the Social Security Trust Fund’s annual revenue. In real terms, he suggests this could amount to an additional $500 billion in revenue for Social Security and $100 billion for Medicare. The added annual revenue, in turn, would almost equal current outflow and turn most of the system’s current revenue into a surplus for the future.

This would give Congress several options, one of which would be to lower Social Security and Medicare taxes for all taxpayers. Another option suggested by Abert would be to use about half the new revenue to strengthen Social Security, Social Security Disability and other important “safety net” support programs and the other half to get rid of corporate income tax.

Source: The New York Times, “Sunday Dialogue: Financing Social Security,” June 9, 2012

By |2019-02-08T20:21:43+00:00June 19th, 2012|Social Security Disability|0 Comments