Update: See comments for good reasons why I might be wrong...
This is a couple weeks old, but James Pethkoukis's Capital Commerce blog at U.S. News & World Report has an interview with Obama economic adviser Austan Goolsbee that briefly touches on Social Security reform. Here's the excerpt, followed by a quick comment:
Does Obama want to raise payroll taxes or uncap the income limit to fix Social Security?
What Obama has said is that the problem with Social Security is not a crisis, but that there are fiscal issues associated with the aging of the population. In his view, the place to start is with the regressivity issue of the payroll tax. It is my own view that the majority of Americans do not understand how the payroll tax works. How it is that a guy making $90 million a year is paying the same tax as a guy making $97,000 a year? I think that at best it would strike them as highly weird and at worst grossly unfair.
The italics are mine. This sentence is interesting since it seems to indicate a willingness to raise the payroll tax rate as well as the cap. (Why? First, it's not clear what raising the payroll tax cap "6 percentage points" means, so I'm inferring it refers to the rate; second, for Obama's plan to lift the cap to keep the trust fund solvent another 50 or 60 years would require it be implemented very quickly, not over decades.) This would seem to indicate a dedication to little or no reductions in scheduled benefits at all.
But he has not called for uncapping it completely, and there are several different ways to do it. But before anybody starts talking about cutting benefits, let's address that issue. It would also get the trust fund to last another 50 or 60 years. An increase in the payroll tax of 6 percentage points phased in over many years or decades doesn't strike me as a dramatic move. They have uncapped the top rates in Ireland, and they have grown extremely well.
From my previous work on Obama's tax plan, the payroll tax rate would need to rise by around 4.7 percentage points -- from 12.4 percent to around 17.1 percent -- by 2080 to maintain solvency, even after his plan to lift the tax cap has been implemented.
For what it's worth, Goolsbee's general comments in the first paragraph focus on Social Security taxes distinctly from the benefits that are linked to them. Yes, the Social Security tax is flat when measured up to the cap, and regressive when measured relative to total income. But benefits are paid progressively based on taxes, so low earners can expect to receive a higher return on their contributions than can high earners. Given the program's history, in which taxes and benefits are linked in a single system, to focus on the progressivity of one element rather than the program as a whole seems misguided. The U.S. already has a much higher taxable maximum than most developed countries; eliminating it entirely would put us out of step even with countries with far more extensive welfare states than our own.