Whether the dipping is direct or indirect is, IMO, no longer relevant. Voters have insisted on a gov'tal spending pattern that require the dipping - in essence, they have already collected on their premiums. I disagree with the claim that SS "works" - the Reagan-era changes were specifically instituted to allow for the "dipping" - this is failure by design as it allowed voters to temporarily have their cake and eat it too. I see no easy way out.
A 2% increase is a big number. Who's going to pay for it? Let's say it's split evenly between employer and employee. That's 1% each. For an employee making $50k per year, that's $500 a year out of pocket. That $500 has to either come out of savings or their consumption. In California, where the cost of living is high, the average person making $50k per year is barely getting by and saving very little. Most of it is being spent. Multiply that $500 times fifteen million workers in California and you've now sucked $7.5 billion dollars out of the state's economy. How many jobs will that cost? We've already got 12% unemployment. (Also, the $7.5 billion produces about $350 million in sales tax revenues that would be lost to the state.) If employers have to pay 1%, that's an even bigger number. A friend of mine has a distribution company that does about $10M a year in total revenues. About 50% of that, $5M, is labor costs. That means he would now have to pay an additional $50K per year in labor costs. When you drive up labor costs, where's the incentive to hire? My friend's company is barely getting by right now. He'd have to lay off an employee pay the additional $50k cost. Two percent is not small. It's huge. It drives up the cost of labor and takes billions of spendable dollars out of the hands of consumers.
Yes agreed, it is a relatively large increase. In fact it's a 16% increase as a percent of current contribution -- that is the way you'll see those who are trying to kill S.S. report it. Sadly, we have known that an increase was going to be needed for quite a few years, the actuaries have known, and it's in their reports. Had we acted sooner it might have been possible to get by with say a 1% increase, but now if there is a further delay the adjustment needed will get larger of course because of the time value of money. Even with the increase, and having looked at all the numbers, I believe it is still a very good deal for most workers. But of course opinions vary on this. What I don't like is to read utter nonsense, such as Social Security is a "Ponzi Scheme" , or "People making 400K a year don't get twice as much back as people making 200K", or "their is no Trust Fund." Equally crazy is to lump social security in with medicare when discussing entitlement problems. It's just pure bullshit designed to paint an entirely incorrect picture of social security. It's fair to say that the future obligations of the government to its entitlement programs is in the trillions of dollars and this presents a picture of huge deficits going forward unless the discretionary budget is significantly cut-- government, and especially military, CIA, and Homeland Security will have to shrink!, medical costs will have to brought under control, and revenues will have to be increased. The public is, however, easily misled into thinking the problem lies with the entitlement programs themselves -- and to a small extent that may be true of medicare (that's a separate discussion)-- however it is decidedly NOT true of Social Security. The reason entitlement obligations going forward are going to result in huge deficits has practically nothing to do with the entitlement programs themselves!. The projected deficits are caused by the government borrowing from the Trust Fund, which contained a huge surplus, and instead of investing the borrowed money in infrastructure, education and research, it spent most of the money on wasting assets, i.e., weapons and endless unproductive wars, including the "war on drugs," and instituting expensive new programs, and onerous, expensive to administer, laws and regulations of questionable merit. At the same time it was drastically increasing expenditures, it intentionally reduced its revenue stream by lowering tax rates. It is obvious why the government is now flat broke and can't pay the Trust what it owes without borrowing more. I think that one way to improve the S.S. system might be to bring down operating costs. It's bound to be difficult, but surely it is doable with some cleverness and innovation. Another improvement I would strongly favor would be to permit the Trustees to invest the Trust in top rated sovereign and corporate bonds world-wide as well as some mix of dividend paying equities. That would have to be phased in very slowly, because to release capital for broader-based reinvestment, current Trust holdings would have to be redeemed. Huge deficits in the discretionary budget won't allow for this, unless the government borrows every cent needed to pay the Trust back. This is the anniversary of the 9/11 attacks. To date we can say with confidence that the Terrorists who attacked the United States on that September morning are winning the war they started. In fact they have won every major battle so far and are well on their way to achieving their goal of bankrupting the United States. Only after the Country wakes up, if it ever does, to the fact that the opposition is waging a financial war, not a military one, will it be politically possible for the U.S. to cease aiding the enemy by playing directly into their hands and start fighting this war with a modicum of intelligence.