Update 277 – Whither Social Security, on the Vine? Or Really Just in Need of a Fix in Time?
This week’s Social Security Trustee Report — little noticed only in part because it was not alarming — was another reminder that the nation is in arrears in maintaining its social infrastructure. This we have long known.
Less appreciated is how many modest policy fixes, phased in over time, can not only bind and secure the social contract but can also help address a growing inequity that makes Social Security more important than ever if the millions of Baby Boomers retiring every year are to avoid poverty.
Something to look forward to. Good weekends all .
This Tuesday, the Social Security Board of Trustees released its annual report detailing the state of the Old Age Survivors Insurance (OASI) and Disability Insurance (DI) programs. The report highlighted the continued fiscal challenges that face the Social Security program (SSA), which on current trends, without supplements, would not be able to pay 100 percent of benefits in 16 years.
Topline figures from the Social Security Trustees Report:
- Disability Insurance (SSDI): income sufficient to pay full benefits on program though 2032
- Old Age and Survivors Insurance (OASI): income sufficient to fund program through 2034
- In 2011, the Board projected that Social Security would be unable to provide full benefits in 2036, they have now adjusted that projection to 2034.
- Social Security is now paying out more in benefits than it receives in total revenue, years earlier than was previously projected.
The Report describes the above dates as the years when these programs will be “depleted.” However, the debate around the status of the OASI and DI programs has centered around the program’s looming “insolvency.”
This faulty analogy belies the fact that Social Security does not go insolvent. The term is at best wrong and at worst misleading. Similarly, suggesting Social Security is or may become insolvent or bankrupt raises cackles needlessly even as it belights idealogues.
While looming benefit cuts are a serious concern that can and should be avoided, the SSA is not a business, it is a facet of the American government that has an obligation to guarantee retirement funds to the American worker.
Source: Peter G. Peterson Foundation
Looming Shortfall; Several Simple Solutions
Experts warn that the longer Congress waits to solve Social Security’s pending shortfall, the more expensive to it will be to fix. In 2011, the Social Security Board of Trustees estimated it would take $6.5 trillion to avoid benefit cuts over the next 75 years. This year, they calculate that it would take $13.2 trillion.
Fixing the program that economists call the most “valuable component of our retirement system,” will be relatively straightforward. House Republicans propose cutting benefits and raising the retirement age to buoy the SSA. Thankfully, this solution appears dead on arrival, given the public’s overwhelming support for maintaining or increasing current levels of Social Security benefits.
A particularly promising proposal in the House Ways and Means Committee is H.R. 1902, the Social Security 2100 Act. The bill currently has 172 Democratic cosponsors and would strengthen Social Security benefits by:
- increasing monthly benefits by two percent
- indexing cost of living adjustments to Consumer Price Index- Elderly (CPI-E)
- creating a new special minimum benefit equal to 125% of the poverty line
The bill would keep the Social Security Trust Fund “solvent,” ie paying out full benefits, for the next 75 years according to the SSA Board of Trustees. It would accomplish this by applying the payroll tax to income over $400,000 and gradually increasing the payroll tax rate on both employees and employers, among other measures.
Congress could also consider applying unearned income such as capital gains to Social Security tax. If we were to FICA a tiny portion (1-3 percent) of capital gains, we would solve the Social Security problem easily — in fact, it would present a significant opportunity to increase benefit levels substantially, possibly by two times.
With such straightforward solutions available, Congress has no excuse not to address Social Security’s long-term shortfalls. Exacerbated by a brand new $1.5 trillion hole in the budget, this is a year when people will hear threats to Social Security, they will infer it from what Republicans are saying, and they may believe it themselves. Democrats, as they have in the past, will provide reassurance. This cycle especially, it is likely to provide a large benefit for them in the midterms.