Mitt Romney, a longtime conservative deficit hawk, has a new plan to save Social Security from falling off a fiscal cliff: Tax the rich. That’s what he wrote last month in a New York Times op-ed, arguing that it’s time to raise the limit on how much income is taxed to fund programs like Social Security and Medicare.
“I long opposed increasing the income level on which FICA employment taxes are applied (this year, the cap is $176,100),” he wrote. “No longer; the consequences of the cliff have changed my mind.”
That’s a welcome change. It’s too bad, though, that Romney — the former Massachusetts governor and, more recently, the former senator from Utah — reached this conclusion only after leaving public office.
Still, Romney’s call for the rich to pay more highlights the need for Republicans and Democrats to get serious about addressing deficit spending and upcoming budget shortfalls that will lead to cuts to programs like Social Security. Romney’s solution is for both parties to agree to a compromise, in which Congress raises tax burdens on the rich while also cutting benefits. Some of those cuts, he argues, could come in the form of raising the retirement age and pegging it to life expectancy.
First and foremost, Congress should ensure that the benefits it has promised to retirees are actually doled out. But given that there are more people entering retirement than young people and immigrants joining the workforce, the Social Security trust fund is dwindling and projected to run out within the next decade. If that happens, the federal government will only be able to honor about 80 percent of scheduled benefits.
In order to avert that outcome, the only solution in the short term is to raise more revenue through taxes. And Romney’s proposal of raising the income level that’s taxed for Social Security is a good start.
To fund Social Security, workers currently pay a tax of 6.2 percent of the first $176,100 of their income, and their employers pay another 6.2 percent. (The exact taxable income figure rises each year with inflation.) Any income earned above that limit, though, is not taxed for Social Security. The result is that high earners contribute a much smaller share of their total income toward Social Security.
Raising that cap would undoubtedly be helpful and would bolster the program’s finances without affecting taxpayers making less than the current cap.
But a more far-reaching solution — which at least ought to be on the table — is eliminating the income limit altogether.
Now, there is a legitimate reason why a cap has existed since Social Security was created: It’s part of the basic architecture of the program that there’s a correlation between what workers put into Social Security and what they take out. Taking more from high earners would mean giving them more when they retire. If people making billions paid payroll tax on every dime, they’d presumably be in line for gigantic retirement benefits.
But if eliminating the cap would stabilize the system, that could be a price worth paying. If Congress doesn’t have an appetite for that change, it could also look for sources of revenue for Social Security outside of payroll, such as taxing investment incomes.
Second, when it comes to how to cut spending — the less popular component of welfare reform — Romney was light on the details, arguing for making Social Security and Medicare means-tested for retirees and raising the retirement age. But lawmakers’ principal obligation when it comes to entitlement reform is to ensure that Americans can retire with dignity. Ideas like raising the retirement age, regardless of life expectancy, should be tools of last resort. Unless there’s a dramatic spike in life expectancy and a significant improvement in older citizens’ health, then forcing people to work for longer spans of their lives makes little sense if dignity is still these entitlement programs’ north star.
That’s why means-testing retirement benefits is a much more preferable way to cut overall spending, because even though that means some people will see fewer benefits, Congress can still expand benefits for those who are most in need. Say, for example, lawmakers lift the cap on taxable income for Social Security. They could take that opportunity to make benefits more progressive, reducing payouts for very high earners in ways that would probably be imperceptible to them while shifting more benefits to the poorest retirees.
Ultimately, Social Security is just one part of the bigger task Congress has to manage the national debt. But starting with that would show that lawmakers are serious about reducing the debt before the deficit really spirals out of control.
Editorials represent the views of the Boston Globe Editorial Board. Follow us @GlobeOpinion.