From: Ron Gebhardtsbauer <gebhardtsbauer@actuary.org>
Subject: RE: Raising the Wage Base
Contributor: PANELIST: Ron Gebhardtsbauer
Bob,
Looks like not only the polls you mentioned, but also the panelists favor raising the wage base by 2 to 1 (although this is not a very scientific poll). When we took our polls with ADSS we found that higher income people also supported raising the cap somewhat. I guess they wanted to do their fair share to solve Social Security's financial problems. However, employers are against this option as pointed out by Ann in her last sentence.
You asked "why is this option so unpopular in Washington?" The Moynihan/Kerrey bill is the only one that raises the wage base. Maybe that's because there are not many Democrats with proposals.
The numbers in Gerry's message on raising the wage base were right on target. He's also ahead of the others on putting forward his solutions.
However, I have to respond to his suggestion to use surplus. Many economists are endorsing using the surplus, because it has lots of advantages for the economy. By saving (not spending) the surplus, we pay down Public Debt and it reduces the government interest payments in the future. However, we have to be careful. The President commits 62% of the Unified Surplus to Social Security. Actually, the Social Security actuaries already assume that money is their's because it comes from their FICA taxes. Thus, dedicating it to Social Security doesn't help the Trust Funds. What President Clinton also does is give another 62% of the surplus to Social Security. It's this additional surplus that moves the solvency date past 2050. However, that means he is using 124% of the surplus (twice the 62%), which means he is spending more money than he really has. Some people say it has no effect. That's true if one doesn't believe the Trust Funds are real. The other paradigm is that the Trust Funds are real. Supporters of this scenario would then note this improves Social Security's rate of return. However, it will also increase government debt which explicitly means we will have to pay more taxes in the future to pay off those debts (because it enables us to fix Social Security with fewer benefit cuts). I hope this hasn't confused everyone. Read it 5 more times and you may start believing it.
