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How To Save Social Security: The Sutton Rule

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Was Willie Sutton a Republican? Might have been. He was the most famous bank robber of his time, yet somehow he managed to die a free man, quietly living the good life in Florida. What's more, he never said that which he's most famous for, what he was supposed to have declared about why he robbed banks: "because that's where the money is." In his book Where The Money Was: Memoirs of a Bank Robber (Viking Press, 1976) -- Yes, even in the days before TV reality shows the frivolously famous, even the criminally famous, were getting hefty book contracts -- Sutton wrote: "Why did I rob banks? Because I enjoyed it. I loved it." Not for money -- but for love! What else do you have to know?

Despite its fictional creation we have come to accept The Sutton Rule in economics for almost everything. I say almost because the one area where we have avoided the obvious is taxes. It seems so simple. It's right there, staring us in the face. But so many Americans run away as quickly as their little feet will carry them. The Sutton Rule properly applied to taxation is: Tax those who have the money! Gee, how hard is that to understand? But we continue to miss it and show no signs of correction.

Look at how we fund our Social Security system. You know it well. You see it in action with every paycheck. Taxpayers pay 6.2% in Social Security taxes while their employers pay a matching amount. Self-employed workers pay it all themselves. But it caps at 12.4% and nobody pays any Social Security tax at all on any income over $108,600 a year. That means individuals pay a maximum of $6,733.20 and their employer pays the same amount. Not all taxpayers are equal however. For example, a medium ranking Wall Street executive, someone who may make $5 million or $6 million a year, pays the same Social Security tax as quite a few New York City police officers; a host of sales and middle management types; many college professors and even some teachers. Lots of people, in various industries, earn as much as $108,600 and all of them pay the same Social Security tax. Not just the same tax rate. The exact same tax in actual, real dollars.

The NYPD officer who makes $108,600 in a year, after all his overtime is figured in, pays the same amount as the Goldman-Sachs executive who makes $108,600 in a week -- Yes, in a week, EVERY WEEK! For the man (or woman) on Wall Street, their Social Security tax is fully paid after the first week in January. For the rest of the year not a single penny is deducted from their paycheck for Social Security taxes. Think about it. A young NYPD Detective, a Wall Street hotshot and -- let's throw in Derek Jeter with his $23 million a year salary -- all three pay the exact same $6,733.20 in Social Security taxes. The City of New York, Goldman-Sachs, and The New York Yankees kick in a like amount and all three end up with a Social Security tax payment of $13,466.40.

The cop earned $108,600. The Wall Street executive made $5.7 million and Jeter cashed in his $23 million. We may argue over the relative merit of their compensation, but there can be no debate about the division of the tax burden. Can $6,733.20 for each be a fair and equitable tax system?

Well, you say, don't they raise the income limit from time to time? Sure they do. Maybe it will go to $200,000 some day. Maybe higher, in time -- if you allow for enough time. But, one thing you can be sure of. The cop, the salesman, the teacher -- YOU -- will always be paying Social Security tax on 100% of your income while the richest among us will never even feel the bite. And when the so-called "Social Security Trust Fund" -- that mythical bank account in the sky -- runs into trouble, what will those who run the government say? They will shout it loud and clear: "Let's raise the age limit for Social Security! Let's cut benefits!"

What will they never say? You will never hear a proposal that ALL income, from ALL sources of revenue, for ALL income earners be taxed to fund Social Security. Why won't you ever hear that? Because if that was in effect today, the $5-$6 million a year Wall Street executive would pay $353,000 a year in Social Security taxes, and his firm would pay the same amount too, and the Yankee shortstop would pay $1,426,000 while the Yankees also paid another $1,426,000. Of course the NYPD cop would still pay the same $6,733.20. So, what makes that fair? Simple -- all three taxpayers would pay the same 6.2% and their employers would pay at the same matching rate. Not only fair, but completely equal.

Do you really believe Social Security could or would ever be in financial trouble or that the eligibility age would ever have to be raised to 69 or 70 or maybe someday to 75 or older, if ALL income was taxed equally? Would Social Security benefits ever have to be reduced? Of course not.

Willie Sutton may not have ever said it, but The Sutton Rule certainly applies to Social Security taxes (and Medicare too!) -- Go where the money is.

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