There is no shortage of proposals that could shore up Social Security and keep its trust funds solvent well into the retirements of those who now are working and contributing to it with every paycheck.
What’s in shorter supply are the years we have to strengthen the 84-year-old program and the resolve in Congress to do so.
Actually, the deadline to fix Social Security was pushed ahead a year in the most recent trustees’ report from the Center on Budget and Policy Priorities, a nonpartisan research and policy institute focused on national and state fiscal responsibility. We now have until 2035 — rather than 2034, the date estimated in CBPP’s 2018 report — to adopt reforms before the program’s two trust funds are tapped out.
So, problem solved. Or not.
Not to downplay the very real urgency to adopt reforms, but what would happen to Social Security sometime in the next 15 years or so wouldn’t be the end of Social Security, but a significant reduction in what the retired and other beneficiaries receive.
Currently, the program has $2.9 trillion in two trust fund reserves: Old Age Survivors Insurance and Disability Insurance. During the past three decades those reserves grew thanks to the difference between what Social Security’s payroll taxes took in and what was paid out in benefits. But as more baby boomers have aged out of the workforce and started collecting benefits, more is being paid out to beneficiaries than is being contributed by workers. And that trend will accelerate.
“The elderly share of the population will climb steeply over the next 20 years, from about 1 in 7 Americans to 1 in 5, and then inch up thereafter,” the CBPP report says.
Assuming no action is taken, by 2035 those trust funds will be fully depleted and beneficiaries’ payments would be reduced by 20 percent to 25 percent.
There are proposals in Congress and among Democratic presidential candidates, in particular Sen. Elizabeth Warren, D-Massachusetts, to restore Social Security’s solvency, improve its benefits and strengthen its effect on the economy.
Legislation introduced earlier this year, the Social Security 2100 Act, would bring more money into reserves by adjusting and eventually removing an existing cap on contributions. Currently, the payroll tax is applied only to the first $127,200 of annual wages; income above that cap is not taxed.
The act would leave the cap, but those with incomes above $400,000 would resume paying the payroll tax, a provision that for starters would affect less than a half-percent of the nation’s top wage-earners. Eventually, the cap would be eliminated altogether. The act also would gradually increase the FICA payroll tax — split between workers and employers — from its current 6.2 percent to 7.4 percent by 2042, at a rate that would mean the average worker would pay about 50 cents more each week, or $26 a year.
It would also provide a 2 percent increase in benefits to all and would use a new formula for cost-of-living adjustments that better accounts for the spending priorities of retired Americans.
Warren’s plan focuses more heavily on increased benefits — including a $200-a-month raise for current and future beneficiaries — and would aim its payroll tax increases on those individuals making $250,000 or more — the top 2 percent of earners — splitting a 14.8 percent tax increase equally between employees and employers.
Yet a third proposal was announced this week by the Committee for a Responsible Federal Budget, also a nonpartisan policy organization led by former members of Congress and federal budget, accountability and economic agency officials.
Its report, Promoting Economic Growth through Social Security Reform, also recommends adjustments if not removal of the income cap, but also suggests slowing the growth in benefits paid to high-income earners, modest changes for middle-income earners and increasing benefit growth for lower-income earners.
It also recommends:
Encouraging delayed retirement among older workers, while still providing a benefit to those 62 and older who can no longer and keeps them from falling into poverty.
Adjusting how benefits are calculated by averaging pay over a worker’s entire career, rather than using a formula that disadvantages those who have worked less than 10 years or more than 35.
Automatically enrolling all workers in Supplemental Retirement Accounts and putting a share of individual wages in those accounts, unless a worker — such as those already enrolled in a 401(k) or similar retirement account — decides to opt out of the program.
The result of its plan, the CRFB says, would not only mean a return to solvency for Social Security but also a boost to the nation’s economy because of a workforce that loses fewer of its older and more experienced workers.
It estimates that depending on which elements of its proposal were adopted, the economy would grow between 3.5 percent and 13 percent by 2050.
“A growth rate of that magnitude would increase average per person income by about $8,000 in 2050 and reduce projected debt levels by about 20 percent of GDP,” the report concludes.
The legislation in the U.S. House, with support from 174 House Democrats — including 1st and 2nd district Reps. Suzan DelBene and Rick Larsen — was referred to various committees but has seen no action since April, likely because its prospects for consideration in the Republican-controlled Senate are dim.
Provisions in each of the three proposals have their own advantages and disadvantages, but discussion and consideration of the available options should begin now. The Social Security Act should be able to celebrate its centennial in 2035 by providing fully for retired Americans, the disabled and families who have lost their primary breadwinner and by adding to the nation’s economic strength.
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