Americans would pay higher taxes to save Social Security
Social Security’s deep popularity among voters has earned it a reputation as the third rail of politics, meaning Congress is afraid to touch it.
But the program’s finances require reform, and soon. The trust fund set up to fill a shortfall between what the government takes in for Social Security and what it pays out is due to run out of money in 2035. When that happens, benefits will be automatically and indiscriminately slashed. That is, unless Congress addresses funding now by either cutting benefits or raising taxes, a choice no politician can stomach. Hence, the third rail.
And yet, Americans are not torn about how the government should deal with the building crisis in Social Security. Quite the opposite. In overwhelming numbers across political parties, ages and demographics, Americans want Congress to raise revenue to preserve benefits. They are more than fine with paying higher taxes to shore up the program.
That’s according to a new survey from the National Academy of Social Insurance that probed American attitudes toward Social Security. The findings were clear: No cuts and no big changes to how the program works. Just fund it.
Social Security was last reformed in 1983, and for a quarter century afterward it collected more in taxes than it paid out in benefits, depositing the excess in a trust fund that held special issue U.S. Treasury notes.
Starting in 2010, though, outlays surpassed taxes collected, and the fund has been redeeming those Treasury notes ever since, which are projected to last only until 2035. At that time, if Congress hasn’t acted, all current and future benefits will be cut by an amount sufficient to balance financial projections for the next 75 years, or around 20%.
In its survey, the National Academy of Social Insurance used a method common in marketing called “conjoint analysis,” which enables businesses to understand how customers value different features of their product or service. Respondents are given menus of product features to compare, rather than specific features, with a price attached to each menu. By iterating through menu options, respondents reveal their preferences and what they are willing to pay for them.
Now consider a menu of Social Security reforms, where the options are a change to revenue (taxes) or benefits, and the price is the share of the long-term financial shortfall that is closed.
By opting for reform packages, respondents reveal the policies they favor the strongest. The winner by far was to eliminate or increase the taxable earnings cap, which is $176,100 and rises each year with the average growth in wages. Doing so could address up to 70% of the long-term shortfall. Also strongly favored:
• Not changing the retirement age
• Making the cost of-living adjustment reflect elderly spending patterns, rather than average spending patterns
• Allowing people in physical jobs to claim retirement at younger ages with less of a penalty
• Raising the payroll tax rate
Combine these ideas with a few other tweaks to Social Security and the survey revealed a reform package that 82% of Americans favor over the status quo — all while flipping the long-term financing shortfall into a surplus. Not only that, but this solution is favored by 74% of Republicans, 79% of individuals in households with incomes higher than $150,000 and 81% of individuals aged 21 to 34. No partisan divide, no class divide, no intergenerational tug of war — just a universal desire to fund Social Security.
The results of the conjoint analysis are no fluke, as evidenced by the simple favorability questions included in the same survey. When asked whether they support raising taxes to maintain benefits, raising taxes to increase benefits, or maintaining taxes and cutting benefits, just 15% of respondents aligned with benefit cuts, while 85% were in support of raising taxes — 30% to increase benefits and 55% to maintain them.
Asked about specific tax policies, 68% were in favor of eliminating the tax cap. That includes 65% of Republicans, 73% of individuals in households earning more than $200,000 and 58% of younger individuals. Even raising the payroll tax rate, a broad tax that would affect all workers, not just those who are highest income, has 57% support. Republicans also favor a payroll tax hike by a slim majority, or 51%, while support among the highest income, 45%, and the youngest, 48%, is a plurality.
These results are consistent with an almost identical survey by the National Academy of Social Insurance in 2014, as well as the high favorability among Americans that Social Security has enjoyed for decades, as tracked by the National Institute on Retirement Security.
Congress might find the support for an increase to payroll taxes to be unbelievable. But Social Security is a truly special program. Americans don’t view their payments into Social Security as taxes, but rather contributions that earn them benefits in the future. There’s an element of ownership to Social Security that even transcends America’s system of taxation — it’s not Congress’s program, it’s Americans’ program. And they are very clear about what they want to happen: fund it, don’t cut it.
Kathryn Anne Edwards is a labor economist and independent policy consultant.
