Unbundling Social Security from the Payroll Tax

Abstract

This Article emphasizes that social security funding has contributed significantly to the shift in tax burdens from high income and wealth to low and moderate income and wealth individuals. To preserve social security as a welfare program primarily for older individuals and to ameliorate the distributional inequity of funding social security across income and wealth levels, the Article proposes unbundling of the benefit side of social security from its longstanding payroll tax funding mechanism. The Article recommends substituting a budget allocation from general revenues for current payroll tax revenue. The substitution would be accompanied by revenue replacement through limitations on both social security benefits for higher income individuals and more general, high income centric tax expenditures while increasing income tax marginal rates moderately. Modifying social security benefits from their current overinclusive, entitlement structure for all to moderately needs-based entitlement possibly freed from the constraint of the current contribution requirement that makes social security underinclusive would help provide the older population an income to facilitate dignified aging.