Why doesn't anyone talk about raising the cap for social security?

[Jim Lane]

34. The economy is important but it's not the only factor at work.

I'll answer by referring to three specific points.

First, I said that economic recovery wouldn't "necessarily" fix Social Security. This relates to the difficulty of making projections many years into the future. For example, several years ago the Trustees were projecting exhaustion of the Trust Fund in 2042. Their most recent projection (intermediate assumptions) is for 2033. The reason for the change is that, in the middle of the last decade, projections didn't assume that there'd be a disastrous recession before the end of the decade. Obviously, the further out you go, the more uncertainty there is. Along with the condition of the economy, long-range projections depend on estimating several other factors, such as average life span and average working life.

Even before the Bush recession, there was concern about the long-range health of the system. This ranged from the realistic, such as Paul Krugman's view that a little tweaking was called for, to the hysterical, such as Bush's meme that Social Security was going bankrupt (and that the Trust Fund was worthless). Obviously the latter were ignorant or were lying for political purposes, but that's not a reason to ignore the more reasonable concerns.

The upshot is: Suppose we "fix" the economy in the sense of getting it back to where the projections from 2004 or so thought it would be. We're still no better off than a situation that was raising some legitimate concerns, and in fact are worse off because of the hit the system has taken (lower income and higher costs) during the recession.

I was in favor of raising or eliminating the cap before the recession began. Ending it wouldn't persuade me that we could stop talking about the cap.

Second, the idea of "fixing" the economy is fairly vague. As just one example, a trend that's caused problems for Social Security since even before the recession is our growing income inequality. The original design was that FICA taxes would apply to about 90% of total wages and salaries. The cap, however, is set at a fixed dollar amount adjusted for inflation but not adjusted for the distribution of income. As the taxpayers in the highest income brackets grabbed a bigger piece of the pie for themselves, total FICA tax revenues as a percentage of total wages and salaries fell to the low 80's. If we "fix" the economy in the sense of significantly reducing the unemployment rate, the much less visible problem of income inequality would persist and quite possibly even increase. I could easily see a recovery that reduced unemployment by providing more jobs at the bottom of the pay scale and that did little or nothing to revitalize the labor movement. (The decline in the rate of unionization is part of what's driving the income inequality.) The result would be that the percentage of wages and salaries paid into the Social Security system would continue to decline even as unemployment declined.

Third, regardless of exactly how you define "fixing" the economy, it's clear that it won't happen overnight. Even a stimulus program enacted in 2009 of the size that liberal economists recommended (roughly three times what was actually enacted) would have taken time to work. Obama didn't even propose such a program, either because he thought (incorrectly) that it wasn't needed or because he saw no chance of getting it through Congress and thought that a losing effort would do more harm than good. More recently, his American Jobs Act sank with scarcely a bubble. Regardless of the election outcome, there's no realistic chance that the government will, even belatedly, undertake a major stimulus program.

Therefore, we can't put all our eggs in the economic-improvement basket. We need to look at other ways to strengthen the Social Security system's financial position. Raising or eliminating the cap should be at the top of that list.