From The Archives 3 - The BEST Mod Plan Factsheet
The Balanced,
Equitable, Solvent, Tested (BEST)
Social Security
Modernization (Mod) Plan
Overview
- The BEST Social Security Mod Plan is superior to other Social
Security solvency plans because it does not raise the retirement age, does
not reduce benefits, and it does not privatize Social Security.
- It works by updating the
definition of work and earnings and adding new classes of workers to the
list of those who pay Social Security payroll/self-employment taxes.
- It corrects a defect in the law
which causes many high earners to pay income taxes at lower rates than low
and mid income workers.
- It adds progressivity to the
Social Security payroll tax rate, creating a three tier system, and also
corrects a defect in the law which prevents the Social Security wage base
from increasing during periods of low inflation and stagnant wages.
- It does not eliminate the
income wage cap, nor does it significantly raise it. While eliminating the
income cap would bring more revenue into Social Security coffers, it would
also significantly increase the amount of benefits paid out to these high
earners, creating an acceleration of cash outflow from the Social Security
trust funds.
New Sources of Program Revenue
- Requires non-covered state and
local governments to pay Social Security taxes for new employees during
their first five years of employment. This insures that these workers will
be covered for Social Security disability benefits during the transitional
period when these workers are not yet vested in the state or local
retirement plan.
- Requires rental income from all
real estate rentals to be subject to Social Security taxes.
- Requires short term-capital
gains to be taxed as wages or self-employment earnings. These investors
are working and should be required to pay taxes at the same rates as other
workers.
- Redefines short term capital
gains to be all investments held thirty or fewer months, an increase from
the current twelve month rule.
- These newly defined forms of
Social Security Earnings would be subject to both the Social Security
payroll/self employment tax and paying income taxes at the current marginal
tax rate instead of the lower long term capital gains tax rates.
Making The Program More Progressive
- Lowers the payroll tax rate for
employees/self-employed whose total annual earnings are at or below the
federal minimum wage level from 7.65%/15.3% to 4.65%/9.3%.
- Increases the payroll tax rate
for that portion of wages which exceeds the 2010 wage cap from 7.65%/15.3%
to 9.65%/17.3%. This higher tax rate will apply to only that portion of earnings
which exceed the 2010 wage cap over a rolling ten year period. After ten
years, the 2011 portion which exceeded the 2010 level will revert to the
original 7.65%15.3% rate. Rather than removing the wage income cap, this
will serve to increase revenue without causing benefits to be increased.
- Corrects a defect in the law
which caused the income cap to stagnate for 2010 and 2011, by recommending
corrective legislation which increases the wage income cap to increase annually
by the higher of either the current methodology or by the average of the
ten previous yearly increases from 2000 to 2009 or the last ten years.
Using the figures from these ten years, the 2011 wage cap base would
increase by $3,420 from $106,800 to $110,220.
What The BEST Social Security Mod Plan Accomplishes
- One effect of the BEST Social
Security Mod Plan is that low earnings, part-time, younger & older
workers as well as many small start-up businesses will get a payroll tax
break. This will encourage these workers to enter or stay in the workforce
and will help to inspire Social Security program confidence.
- Adding a payroll higher tax
rate to only that portion of earnings which exceed the wage base or cap
over a rolling ten year period will increase program revenue without triggering
higher benefit outlays.
- The three new types of work and
earnings subject to the payroll/self employment tax will provide an
additional source of program revenue, and provide a source of additional
federal income tax revenues without the consideration of whether or not to
extend the Bush tax cuts.
- Improves the long-term solvency
of the Social Security program.
Join the Best Social Security Mod Plan Team!
November 11, 2010
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