Friday, August 29, 2008

The Aug. 25 editorial "Social Security on Ice" about Democratic presidential nominee Barack Obama's suggestion of a higher FICA tax on earned income of more than $250,000 a year, but not on income from $102,000 to $250,000, would have been better if it had clarified the way in which benefits and taxes are coordinated.

Under the law's basic formula, benefits are determined on earned income that has been taxed under the Federal Insurance Contributions Act (FICA). Thus, if a higher FICA tax were levied on earned income above $250,000, but not on earned income between $102,000 (the current maximum taxed) and $250,000, covered employees who earn between $102,000 and $250,000 would not get higher benefits. That would be hard to justify.

On the other hand, if benefits were payable to those who earned between $102,000 and $250,000 but who did not pay a FICA tax, the philosophy of Social Security would be undermined; most Social Security recipients feel entitled to their benefits because they have paid the FICA tax.

There are many other ways to close the upcoming deficit on Social Security, including, but not limited to, dedicating the estate tax to Social Security; permitting Social Security trustees to invest some of the huge debt now owed to Social Security by the federal government as a result of deficit spending; extending coverage to newly hired employees of state and local government who are now exempt; and imposing a tax other than FICA on earnings over $102,000, in gradually escalating amounts.

EDITH U. FIERST

Bethesda

The writer was a member of the Clinton administration's Social Security Advisory Council.