The State and Politics of Social Security 2016 (June 23)

Mike & Co.,

While the world watches the “Brexit” vote tomorrow with rapt anticipation, closer to home, the centerpiece of America’s welfare system is being discussed and debated.

The annual report by the Social Security and Medicare Board of Trustees issued this week this has once again made clear the gap between revenue and spending at those entities, predicting that Medicare’s trust fund will deplete two years earlier than expected.

This is bad news and the two parties disagree on how to fix this problem.  More on the problem and proposed solutions below.

Best,

Dana

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A Growing Concern

The Social Security and Medicare Board of Trustee’s Report for 2016 was released on June 22 and offered little in the way of optimism.  The two trust funds that provide interest payments for welfare continue to face depletion within the next two decades, with a worrying trend toward greater disparities between their income and spending.

Under existing law, the trustees said, Medicare’s hospital trust fund would be depleted in 2028, two years earlier than projected in last year’s report.  In addition the Social Security trust funds for old-age benefits and disability insurance, taken together, could be depleted in 2034, the same year projected in last year’s report. Tax collections would then be sufficient to pay only about three-fourths of promised benefits through 2090, they said.

Since 2010, the tax revenue received by Social Security has been outstripped by its spending on benefits; until now it has been able to make up that difference through interest earned on its trust fund and the sale of special Treasury notes. The Trustee’s report predicts that this extra income will be inadequate by 2020.  Social Security’s 75-year present value of the shortfall is $11.4 trillion.

Revenue, Taxes, and Benefits

The costs of both programs are set to rise in the face of an aging U.S. population, making it difficult for the government to outrun the solvency problems even by sharply boosting economic growth. Medicare and Social Security accounted for 41 percent of federal spending last year, up from 36 percent in 2011.

Beyond an increase in benefit spending, the rate of tax revenue has become outstripped by income growth thanks to the $118,500 cap on payroll taxes.  When that cap was introduced in 1983, the payroll tax covered 90 percent of income in the US.  Since then, the coverage level has dropped to 82 percent  if payroll taxes still covered 90 percent of income then the Social Security shortfall would be only 40 percent of what it is now.

The inadequacy of current payroll tax revenue for funding Social Security, and a preference not to burden retirees with sudden benefit cuts or increases in the retirement age, have caused Democrats to push for a tax-based solution to Social Security and Medicare’s solvency problem.  The GOP has countered with a drive to raise the retirement age, reduce benefits, or otherwise overhaul Social Security rather than rely on higher tax rates.

As time runs out on securing the program’s solvency, scrapping the tax on taxable income will look better and better because a tax-rate increase can be phased in nearly instantaneously, versus the multi-year phase-in for benefit reductions.

The Gap between Washingpand Citizens

Among all voters, 71 percent say that Social Security benefits should not be reduced. Among the supporters of each presidential candidate,62-73 percent say that Social Security benefits should not be reduced. 70 percent of likely 2016 voters, including 62 percent of Republicans, support expanding benefits.

Meanwhile, the 2016 election, far from addressing the solvency issue facing Social Security and Medicare, has tended to revolve around whether or not to expand benefits.

Both Democratic presidential primary candidates have promised to increase benefit levels while the Republican presumptive nominee has bucked his party to promise that Social Security benefits won’t be cut on his watch.

This sort of discussion, which presumes as preordained that Social Security and Medicare will remain fully funded, might undercut the impact of recent Trustee reports.  Even if the Democrats are able to remove the payroll tax cap, that increase revenue will only cover 71 percent of the long-term shortfall, and that’s at current projected spending levels (i.e. without an increase in benefits).

Candidates’ Approaches

HRC has proposed increasing Social Security benefits and allowing people age 55 to 64 to “buy into” Medicare.  Her plan includes providing a caretaker credit and expanding the benefits of widows.  The expansion would be paid for by eliminating the payroll tax cut-off after $118,500.

Bernie Sanders ran on a platform of benefits expansion, paid for by eliminating the payroll tax cut-off. He proposed the Social Security Expansion Act (S. 731) in 2015, which would eliminate the cap on payroll taxes for wealthy Americans and increase Social Security benefits across the board by $65 per month per recipient. Sanders also supports increasing the minimum benefit and improving the cost-of-living adjustments.

Donald J. Trump has repeatedly said he would not cut either program, but those promises clash with earlier proposals, before Trump ran for election, to privatize social security payments.  The candidate does not have a concrete proposal to improve Social Security solvency, but believes the program can continue to be funded by reducing unemployment and eliminating waste, fraud, and abuse.

Apropos Bills

S. 731: Social Security Expansion Act – Sponsor: Sen. Bernie Sanders (I-VT), Cosponsors: 0

The bill would increase benefits by approximate $65 per month for most recipients, increase cost-of-living adjustments for Social Security recipients, provide a minimum Social Security benefit, and eliminate the cap on payroll taxes.

S. 2251: SAVE Benefits Act – Sponsor: Sen. Elizabeth Warren (D-MA), Cosponsors: 22 (21 Democrats, 1 Independent)

The bill would give an emergency benefit, equal to 3.9% of the average annual Social Security benefit, to 70 million seniors, veterans, and people with disabilities.  It would also eliminate the “Bonus pay loophole” found in section 162(m) of the Internal Revenue Code.

S. 1651: Social Security Fairness Act – Sponsors: Sen. Sherrod Brown (D-OH), Sen. Susan Collins (R-ME), Cosponsors: 24 (16 Democrats, 6 Republicans, 2 Independents)

This bill would repeal provisions and offsets that reduce certain Social Security benefits.

S. 1904: Social Security 2100 Act – Sponsor: Sen. Richard Blumenthal (D-CT), Cosponsors: 0

The bill would give increases to all beneficiaries, improve cost-of-living adjustments, raise the threshold for taxation on benefits for individual and joint filers, and set a minimum benefit at 25% above the poverty line.

S. 1940: Safeguarding American Families and Expanding Social Security Act of 2015 – Sponsor: Sen. Brian Schatz (D-HI), Cosponsors: 0

This bill would revise the Social Security benefit calculation method, resulting in an increase in benefits by approximately $65 per month per beneficiary; the proposal would also phase out the current payroll tax cap and base the cost-of-living adjustments on the Consumer Price Index for the Elderly.

S. 960: Protecting and Preserving Social Security Act – Sponsor: Sen. Mazie Hirono (D-HI), Cosponsors: 1 ( Democrat)

The bill would gradually phase out the income cap of the payroll tax over seven years and adjust benefits according to the CPI-EC.

S. 1387: SSI Restoration Act – Sponsor: Sen. Sherrod Brown (D-OH), Cosponsors: 12 (11 Democrats, 1 Independent)

This bill would index earned income limit to $364 a month and general income to $112.

S. 2090: Social Security Earned Benefits Payment Act – Sponsor: Sen. Ron Wyden (D-OR), Cosponsors: 28 (27 Democrats, 1 Independent)

This bill would implement a “clean reallocation” between SSDI and OASI trust funds and prevent cuts to disability insurance benefits in 2016.

S. 2387: Protection of Social Security Benefits Restoration Act – Sponsor: Sen. Ron Wyden (D-OR), Cosponsors: 7 (6 Democrats, 1 Independent)

This bill would repeal the 1996 garnishment rules for Social Security, and prevent future garnishment for federal student debt, home loans owed to the Veterans Administration, and food stamps overpayments.

S. 2293: Retirement and Income Security Enhancements (RAISE) Act – Sponsor: Sen. Patty Murray (D-WA), Cosponsors: 0

This bill would give improved benefits to certain divorced spouses, widows, and students.

H.R. 1391: Social Security 2100 Act – Sponsor: Rep. John Larson (D-CT), Cosponsors: 101 (all Democrats)

The bill would give increases to all beneficiaries, improve cost-of-living adjustments, raise the threshold for taxation on benefits for individual and joint filers, and set a minimum benefit at 25% above the poverty line.

H.R. 1984: FAIR Social Security Act – Sponsor: Rep. Peter DeFazio (D-OR), Cosponsors: 9 (all Democrats)

The bill would repeal the income cap of the payroll tax (currently set at $118,500) and adjust benefits according to the CPI.

H.R. 3150: One Social Security Act – Sponsor: Rep. Xavier Becerra (D-CA). Cosponsors: 91 (all Democrats)

The bill would merge the Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance Trust Fund into a combined Social Security Trust Fund, averting a 19% cut to disability benefits.

H.R. 4144: SAVE Benefits Act – Sponsor: Rep. Tammy Duckworth (D-IL), Cosponsors: 58 (all Democrats)

The bill would give an emergency benefit, equal to 3.9% of the average annual Social Security benefit, to 70 million seniors, veterans, and people with disabilities.  It would also eliminate the “Bonus pay loophole” found in section 162(m) of the Internal Revenue Code.

H.R. 1811: Protecting and Preserving Social Security Act – Sponsor: Rep. Ted Deutch (D-FL), Cosponsors: 12 (all Democrats)

The bill would gradually phase out the income cap of the payroll tax over seven years and adjust benefits according to the CPI-EC.

H.R. 1756: Social Security Enhancement and Protection Act – Sponsor: Rep. Gwen Moore (D-WI), Cosponsors: 1 (Democrat)

This bill would increase the special minimum benefit paid to workers who have spent long careers in low-wage jobs, and would give extra benefits to certain parents and the very old. The bill would also eliminate the cap on taxable income.

H.R. 2078: Keeping Social Security Solvent Act – Sponsor: Rep. Paul Tonko (D-NY), Cosponsors: 0

This bill would eliminate the cap on taxable income.

H.R. 3351: CPI-E Act of 2015 – Sponsor: Rep. Mike Honda (D-CA), Cosponsors: 36 (all Democrats)

This bill would switch the accounting for Social Security benefits to a more accurate CPI-E.

H.R. 3377: Caregiver Credit Act – Sponsor: Rep. Nita Lowey (D-NY), Cosponsors: 60 (all Democrats)

This bill would enhance caregivers’ Social Security benefits.

H.R. 4529: Social Security Parent Penalty Repeal Act – Sponsor: Rep. Patrick Murphy (D-FL), Cosponsors: 7 (all Democrats)

This bill would improve Social Security benefits for parents leaving the workforce to care for a new child and modifies the cap on the payroll tax.

H.R. 1419: Social Security Fraud & Error Prevention Act – Sponsor: Rep. Xavier Becerra (D-CA), Cosponsors: 19 (all Democrats)

This bill would increase resources dedicated to program integrity.

H.R. 2169: Social Security Accountability Act – Sponsor: Rep. Brian Higgins, Cosponsors: 17 (all Democrats)

The bill would require the Social Security Administration to collect caseload statistics.

H.R. 2442: SSI Restoration Act – Sponsor: Rep. Raul Grijalva (D-AZ), Cosponsors: 36 (all Democrats)

This bill would index earned income limit to $364 a month and general income to $112.

H.R. 3621: Social Security Earned Benefits Payment Act – Sponsor: Rep. Sander Levin (D-MI), Cosponsors: 12 (all Democrats)

This bill would implement a “clean reallocation” between SSDI and OASI trust funds and prevent cuts to disability insurance benefits in 2016.

H.R. 3967: Stop Social Security Garnishment for Student Debt Act – Sponsor: Rep. Raul Grijalva (D-AZ), Cosponsors: 19 (all Democrats)

This bill would prohibit administrative offset of Social Security benefit payments with respect to claims arising from Federal student loans, and others.