Raising the Wage Base and increasing public scrutiny

[Reed Davis <rdavis2@ix.netcom.com>]

Walter Hart wrote:
>
> A while back I was talking to a doctor who owned his own business. I
> understood him to say that he avoided payroll taxes by taking only a
> minimal wage/salary income and obtaining income from his business in other
> forms than wages/salary (e.g., renting his building to his corporation or
> as "dividends").
>
You bring up a very interesting point.  It does seem strange that a person
who makes their income from non-wage sources, such as stocks, pays nothing
to support the safety-net portion of Social Security.  For this reason, I
don't have a big problem with raising or eliminating the taxable wage base.
It's already been eliminated for that part of the FICA tax that goes to
Medicare.

I would prefer a more direct approach, however.  Social Security is a
combination of retirement system, insurance, and  safety-net.  The
retirement system is that portion for which a person receives the amount
of their contributions plus interest, regardless of their circumstances.
The insurance is that portion for which a person receives coverage for
which they pay the entire premium.  Finally, the safety-net can be thought
of as insurance for which the recipient does not pay the premium.

The safety-net, I think, should be funded by progressive taxes.  Perhaps
these taxes should apply to forms of income other than just wages. At the
very least, there should be no ceiling above which wages are not taxed.
The insurance portion, however, should be paid by the recipients of the
coverage.  Just as drivers must carry a minimal level of auto insurance,
there is a good argument that all people should be required to carry a
minimal level of retirement and disability insurance.  Anyone who could
not afford to pay the entire premium would fall, at least partially, into
the safety-net.  As far as the retirement system, there's a question as
to whether the government to be madating anything.  As long as people have
insurance and a safety-net, there is no necessity for retirement.  The
option of living above the minimal level of insurance should likely be
left up to the individual.

The above method of funding is pretty much impossible for the current
system in which the retirement system, insurance, and safety-net are
inexorably intertwined.  For this reason, I think we need to split
Social Security up into its component parts, at least in its accounting.
Many will say that Social Security cannot be split in any way, arguing
that this will destroy support for its safety-net.  This argument implies
that we "intellectuals" know that this safety-net should be supported but
that the masses do not.  I very much support the safety-net but I think
that it must be subjected to public scrutiny just as all other public
policies should be in an open representative government.  Only by opening
Social Security up to public scrutiny can we have a truly informed debate
on how to reform it.

Reed Davis