Pros and Cons of Three Social Security Reforms

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Therefore, they will greatly rely on the Social Security benefits. The cut in benefits will hurt them economically and lead to a social problem of inequity and affect the redistribution of wealth.

Reform 3:

Introduction: Reform 3 focus on raising Social Security tax revenues collected by raising the tax rate on taxable wages from 6.2% (payroll tax rate for all workers and employers) to 7.2% and by increasing the payroll tax cap from $118500 to $274200.

Pros: By raising the tax rate on taxable wages and extending the base of taxable wages, this proposal not only can increase Social Security revenue earned from each taxable dollar, but also can cover more percentage of earnings to earn more tax revenues for Social Security program. This proposal will be greatly helpful to solve the financing issues of this program, increase its revenues and keep this program strong and pay for benefits. What’s more, by making top earners pay more into Social Security program, this proposal is quite sensible and fair and can serve for the purpose of promoting social equity and improving wealth redistribution.

Cons: The increase of tax rate on taxable incomes will increase every worker’s taxes, no matter what level of incomes they earn. From the perspective of employer, these extra taxes will lead to higher labor costs and discourage hiring and encourage them to move overseas or automate production process to make less workforce required, which will hurt the job opportunities of young and low-income workers and also hurt America’s economy. For those older workers, job opportunities will also be affected. Moreover, extending the base of taxable wages will reduce working American people’s consumption on food, housing, education and further hurt America’s economy. In this case, middle-class American people will be hit hard by the adjustment of tax rate and tax cap because their incomes are more likely to fall between $118500 and $274200. This proposal will affect different income groups disproportionately and are likely to exacerbate social inequity and hurt wealth distribution.

Conclusion: Every coin has two sides, for these three reforms discussed above, they are helpful to solve the financing issues of Social Security to some extent, however, they may lead to some problems of inefficiency and inequity. When policymakers make and implement these reforms, they can not just focus on the advantages of them, they need to think from a broader perspective and notice the potential disadvantages as well as find ways to lower the impact of those potential disadvantages so as to make Social Security program function efficiently and fairly.