More than 50 million Americans will receive benefits this year, and 164 million workers are paying taxes into the system in expectation of getting money back when they retire or if they become too disabled to work. More than 6 million receive survivor benefits.
The average benefit is slightly more than $1,000 a month, amounting to about 40% of all income received by the elderly. For about a third of seniors, Social Security accounts for 90% of their retirement income.
Social Security is funded by a payroll tax equal to 12.4% of wages and salaries up to a maximum of $102,000. The tax is split between the worker and their employers. Unearned income, such as capital gains, dividends or interest, is not taxed. Most workers pay more in payrolls taxes than they do in federal income taxes.
Obama’s plan
Obama doesn’t want to cut benefits. “Obama will make it a top priority of his administration to protect Social Security benefits for current and future beneficiaries alike,” according to the position paper on his campaign website. “And he does not believe it is necessary or fair to hard-working seniors to raise the retirement age.”
That leaves raising revenue, which means higher taxes for somebody.
“The first place to look for ways to strengthen Social Security is the payroll tax system,” his campaign says. Rather than impose the payroll tax on all income above $102,000 to raise the money Social Security needs, Obama has suggested a sort of “doughnut hole” approach. Income between $102,000 and $250,000 wouldn’t have any payroll tax, but incomes above $250,000 would.
About 6% of American workers make more than $102,000, and many of them consider themselves middle class. About 3% of workers make more than $250,000 a year.
McCain’s plan
A solution to Social Security’s funding problems can’t be imposed by either political party, McCain has said. The only way to fix the system is to do what Ronald Reagan and Tip O’Neill did in 1983: get leaders of both parties in a room to come up with a plan.
McCain was a strong supporter of Bush’s plan to create private retirement accounts funded by payroll taxes.
He hasn’t backed away from that support, but he hasn’t made it a centerpiece of his campaign either. He did bring it up in one appearance on CNN: “I want young workers to be able to, if they choose, to take part of their own money, which is their taxes, and put it in an account which has their name on it.”
Diverting tax revenues into private accounts, whatever their impact might be on the individual’s retirement security, wouldn’t help the solvency of Social Security because current benefits would still have to be funded. “It doesn’t solve the arithmetic problem,” Elmendorf said.
NOw if you would like a more vague idea of fixing Social Security, it would take a massive amount of research. These are the vaguest of the vague.