Senator Chafee and Social Security

According to Monday's Projo, Senator Lincoln Chafee’s plan for fixing social security, without relying on private accounts, is simple. Raise taxes and reduce benefits.

The tax-increase comes in the form of raising the (admittedly arbitrary) cap on income subject to social security taxes. No social security tax is paid on individual income after $90,000. Chafee wants to raise the cap to as much as $200,000. Were you building a system from scratch, there would be little to complain about here, provided you picked reasonable tax rates.

But we are not building a system from scratch. Older citizens who spent 0 years paying taxes on income above the current cap will be treated exactly the same as younger citizens who might spend 10, 20, or even 30 years paying extra taxes. How will they be compensated for their extra contributions?

And, according to Chafee’s proposals, younger tax-payers will not even be treated the same. They will be treated worse. Chafee wants to slow down the yearly cost-of-living increases in Social Security benefits. So, although young people will be paying more, they will receive fewer benefits over the long run.

Any incremental plans to save social security will be a variation on this same theme: raise taxes and reduce benefits. And like Senator Chafee’s plan, most will try to hide the fact that they will disproportionately impact younger taxpayers. If the government is going to ask young people to pay more and receive less, is it not it reasonable to offer them something like personal accounts to offset their lost income?