Certified Public Accountant

{5:12 minutes to read} Anytime there's a presidential election, Social Security seems to come into focus in the news. People suggest a million ways to save Social Security:

• Raise the retirement age.
• Take the cap on income off and make EVERYONE pay on their whole salary.
• Eliminate benefits to people with over a certain amount of assets.

I, too, have a plan which I think is more fair than the current system, and would also help the economy.

Currently, $118,500 is the amount of income that people pay social security on for 2015/2016. We pay at a rate of 6.2%. Employers pay an additional 6.2% for a total of $7,347 each.

Young people have this feeling they will never get social security. Although my generation had that same feeling when I was in my 20s, it's still here, so I imagine it will continue to be there, but it is important to realize that at some point we may have to amend the funding or payout system.

My proposal is this:

• For workers 20-25, the rate would be 1%.
• 26-30 - 2%.
• 30-35 - 3%;
• 36-40 - 4%;
• 40-45 - 5%;
• 46-50 - back to the regular rate of 6.2%.

The cap would remain at $118,500, adjusted for inflation each year.

The trick here comes in two parts:

  1. The employer would continue to pay their 6.2%; We don't want employers to have to pay more as people get older, because it would discourage them from hiring older workers.
  2. The side benefit of this would be younger people who have money would tend to spend and grow the economy, creating more workers who can pay more social security tax.

I would also consider giving a credit for student loan interest. On your tax return, you could deduct your student loan interest from what you have to pay in social security.

As we start to get closer to social security:

• 50-55 - 7% and double the cap;
• 56-60 - 8% and triple the cap;
• 60+ - 9% and quadruple the cap.

Again, this system is a new way to look at social security, and I believe it's a workable way. Young people will not feel so disenfranchised and will have more money in their pockets to spend. Middle-aged people will have some extra while they're paying mortgages and sending kids to college etc. In later years when the mortgages are paid and the kids are through school, older people will be able to fund social security which they're going to begin to get back in a shorter amount of time.

For example:

A 27 year old who makes $70,000 currently would pay $4,340 in social security tax. Under my system, that person would pay $1,400 which would put just under $60 a week in that person's pocket. Most 27 year olds will spend that money, increasing the economy, and increasing jobs, which will put more people on the social security payroll. A person making $300,000 who's 63 years old, would pay $27,000 in social security instead of $7,000.

It does seem a bit unfair, but again that 63 year-old during their 20s and 30s will have paid a lot less at a time they needed it more.

Of course as more people are living longer we may also need to speak about raising the retirement age in increments. But before doing that, I think this would be a good way to look at it first. Obviously, this would need to be phased in. It would be wrong to hit people who are over 60 with a 9% tax when they didn't get the benefit of the lower rates when they were younger, but this could be phased in over 20 or 30 years, to where it would be much more fair for all.

Please understand this plan is an alternative to the many ideas being proposed. If you agree that something has to be done to mend Social Security to the changing demographics of our country, this is one idea.

Feel free to comment.

If you have any questions, please contact your tax advisor or you can contact us at info@gannscpa.com or by calling 914-682-7007.

Stephen J. Ganns, CPA