Forget the politics, here are several ways to assure Social Security solvency for at least 75 years

Dealing in facts seems to be out of fashion theses days. When it comes to Social Security what people believe goes from the sublime to the ridicules. It is those myths and misinformation that make it even more difficult to take action.

The simple fact is that funding Social Security has not kept pace with changing demographics, workforce changes, retirement patterns etc. Funding has not been adjusted because one Congress after another has ignored the warnings of the Social Security Trustees and have done nothing to fix the program.

So here we are closing in on a crisis and finding it harsher than should have been necessary to fix the problem. Fixing Social Security generally means assuring adequate funding for at least one generation – 75 years.

I have used the Committee For a Responsible Federal Budget modeling tool to construct several changes in Social Security that will make it solvent for 75 years although not necessarily sustainable beyond that without more changes. Each bullet option is a separate set of changes, only one option is necessary. Yes, these are estimates over many decades, but that is true regardless of the methodology. And yes, over the years other changes may be necessary.

  • Raise the payroll tax by 3.5 % – half paid by employers. That is, if current workers paid an additional 1.75% in payroll taxes and no other charges were made, SS stays solvent for the next 75 years.
  • Raise payroll tax by 1.5% and tax all wages – with additional benefits based on those taxes
  • Increase payroll tax by 1%, apply tax to cafeteria plans – referred to as Section 125 of the IRC – (employee contributions to such plans are not subject to taxes currently) and apply SS payroll tax to all wages above $400,000 – with additional benefits applied
  • Raise the full retirement age to 69 and index it to longevity, index future COLAs to chained CPI and means test the COLAs – this would effectively eliminate COLAs for high income retirees
  • Raise full retirement age to 69 and index to longevity, apply payroll tax on all wages above $400,000 (with added benefits, but at lower accrual rate) and include all newly hired state and local workers in Social Security. This combination of changes would allow for creation of a higher minimum benefit of 125% of the poverty level.

These are just some of the changes and combination of changes possible to keep Social Security solvent. It’s not all that hard. The real shame is that if Congress had made very modest changes (less than one percent) to the payroll tax for example, over several years and consistently adjusted it as necessary, we would not have a crisis and workers would not even notice the changes.

8 comments

  1. I say leave SS the way it is and when the shortage happens, cut the SS benefits by 20% of anyone who has other retirement income, including me. Those who’s only retirement income is SS would see no cut. In the next 12 years with COLAs averaging 4%, benefits increase 48%, so a 20% cut would not be that bad. When are the people currently on SS going to help with the coming shortage, when the truth is, no one paid for their total SS benefits, if they draw benefits for 8 to 10 years. Who pays for years 11+ ???

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  2. I’d support a combination of raising FRA and privatizing a portion of SS. The privatization would allow up to 15% of contributions to be privatized, but the reduction of benefit on the fed side would be twice as high as the privatized portion (if you privatize the maximum 15%, your SS benefit is reduced by 30%).

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    1. There needs to be a way for solutions like these to get a fair hearing with someone who actually has the power to move the needle. Does anyone in Congress care enough to risk their seat?

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  3. Everyone has preferences for the changes they would like to see. Unfortunately, almost all are shaped by anti-selection. Think: “The best tax is the one I owe and YOU pay”, or “Don’t tax you,don’t tax me, tax that guy behind the tree.”

    Nothing will happen until Congress has no alternative but to take action, and then they will, a la 1983, impose their priorities on the rest of us. If it is a D Congress and White House, expect a reliance on increased taxes. If it is a R Congress and White House, expect various changes desined to moderate unfunded liability. If the White House and Congress are split, expect a repeat of 1983.

    Until everyone stops lying to American taxpayers, and Medicare/Social Security beneficiaries, nothing will happen.

    There is a bipartisan, inter-generationally savvy solution, where each individual, taxpayer and beneficiary, gets to make their own decision on how to close the funding gap. However, because such a solution requires truth and transparency, it ain’t gonna happen.

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  4. The devil is, of course, in the details. It is a simple matter to increase the buy in through increased tax or to cut back benefits (increase max benefit age or beginning age or increase tax to all earned income levels) or to adjust colas. The problem in Washington is that people don’t like tax increases and they don’t like benefit cuts and some people want other adjustments such as a one-time benefits bump for the superannuated. The cowardly way is to create special commissions to study the problem and make recommendations. That was done in the 80’s and it worked pretty well. That is how Greenspan got involved then. The pols then refer blame to the commission when voting a change.

    Personally, my preference is to let it ride for a few more years and then look at where we are. We have a lot of things on the plate and Social Security is only one.

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    1. The longer we wait, the more difficult and harsh the changes must be. The real answer IMO is automatically adjusting the taxes annually as needed to keep the program solvent for the projected period. That means it goes up every year by a very modest amount, possibly even down, and is also adjusted actuarially for any benefit changes. No playing games. Yeah, good luck with that.

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      1. I like the idea of adjusting on the fly instead of trying to guess what the tax should be long term. The cost of the program would be available on an annual basis and everyone would know where we stand.

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