by suggesting the possibility of increasing the Social Security wage cap.
When President Bush opened the door to increasing the Social Security wage cap to include all earned income, it was to garnish support for his plan to partially privatize Social Security. The AP reported that including all earned income would add approximately $100 billion per year to Social Security taxes. AP further reported that only 6% of wage earners would be impacted by this proposal.
The $100 Billion per year would pay for partially privatizing Social Security without going into more debt. The problem is that simply creating the private accounts does not solve the system's inability to pay benefits to the baby boomers. Therefore, the problem President Bush has created for himself is that even if he takes the controversial step of increasing Social Security taxes on the top 6% of American workers; he can't fund the private accounts and solve the funding requirements. This would put him in the position of proposing a tax increase on wealthy workers and cutting benefits to Social Security recipients to accomplish both objectives.
The other conundrum for Mr. Bush is that the study also shows that if the increased revenue by lifting the Social Security income cap is added to the Trust Fund, it would make Social Security solvent through the baby boomer period. If the additional $100 billion per year were invested in equities, with their higher yield, the solution to the funding problems of Social Security would most likely be permanent. The final benefit is that the added tax revenue will push back the date (estimated at 2018) when the trust fund will need to be tapped to pay retirement benefits. That will also compound the money available in the trust fund when the peak demand from the baby boomers require some added funding to fully pay those benefits.
Cliff Notes summary is as follows:
Begin taxing all earned income for Social Security at the existing tax rates.
Invest this added money into a comprehensive list of equity investments within the Social Security Trust Fund.
Initiate an education program that shows the importance for everyone to contribute to their own equity account over and above Social Security.