Through the donut hole

By Lindy McCollum-Brounley

Patricia Dilley, University of Florida Levine College of Law professor.

Patricia Dilley, University of Florida Levine College of Law professor.

The legislative drama surrounding the recently passed Patient Protection and Affordable Care Act ignited a furious national debate on the role of government.

Many Americans on the left say affordable health care is a fundamental human right and that government has an obligation to address disparities in access to health insurance and affordable care. Others on the right reject government sponsored health insurance and federal tinkering in the private insurance markets as un-American redistributions of wealth.

“It’s always struck me as ironic — and in fact, it’s instructive — but the language used by various politicians in the debate over Social Security in the ’30s, over Medicare in the ’60s and the debate this past year over health care are identical,” said Patricia Dilley, a University of Florida Levin College of Law professor law specializing in federal income tax, deferred compensation, tax policy and elder law. “Identical things were said, ‘Social Security is socialism,’ yet it’s now part of the fabric of our society.”

Dilley has special insight on the Social Security program due to her work as a legislative analyst for the Social Security Administration and as the staff director for the U.S. House of Representatives’ Committee on Ways and Means, Subcommittee on Social Security. As staff director for the Subcommittee on Social Security, she played a signifi cant role in developing the legislative language for the refinancing of Social Security and other amendments to the program, including raising the retirement age, in the 1980s.

She said that Americans view Social Security and Medicare as pseudo annuities — you get out what you paid in. In actuality, both programs are redistributive because they give somewhat higher benefits to lower paid workers, and because anyone who can demonstrate he or she worked and paid into the system for the requisite quarters of coverage is entitled to the benefit, regardless of how much they or their employers paid into the programs.

“I think most people put Social Security and Medicare in a different category because they contributed to it, and they feel they are entitled to it because they worked,” Dilley said. “It’s their program in a way that other government programs don’t seem to be. They don’t think that’s socialism … That’s something different.”

Dilley explores this schism in public perceptions and the long-term funding of Social Security in her article, “Through the Donut Hole: Reimagining the Social Security Contribution and Benefit Base Limit,” printed in the May issue of Administrative Law Review. The article also analyzes how Social Security may be transformed by attempts to control spending.

“The next big thing coming is the president’s newly-appointed Deficit Commission. Many of the people he appointed are defi cit hawks who have made careers out of wanting to cut or privatize Social Security,” Dilley said. “In the article, I talk about President Obama’s campaign proposal to address long term deficits in Social Security by applying the Social Security payroll tax just to people who earn over $250,000 a year, thereby creating a gap in the current base, which is $106,800, hence the ‘Donut Hole’ name.”

Any talk of implementing the donut hole tax base for Social Security is likely to result in a firestorm of protest from those who object to wealth redistribution policies, but Dilley said the wealthy will benefit from the donut hole in ways they may not realize.

“Social Security was explicitly intended by its founders to serve as a social stabilizing mechanism, to provide a modest retirement income those who had worked all their lives and contributed to society could count on,” she said. “I think that gets to the philosophic heart of the program, because it’s not something you’re paying for, it’s something you’re earning.”