(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Mark Miller
CHICAGO, April 20 Can you count on your Social
Security benefits when retirement rolls around?
Most Americans worry about this - partly due to the nonsense
they hear from political opponents of Social Security and
ill-informed media. You will hear that the program is bankrupt,
its reserves are nothing but a bunch of IOUs, or that Social
Security is a Ponzi scheme.
All of those claims are false, but there is one good reason
for concern. Social Security faces a long-term financial
imbalance that would force sharp benefit cuts in 2034 unless the
government makes changes. The problem stems from falling
fertility rates and labor force growth - which reduces
collection of payroll taxes that fund the system - and also from
the retirement of baby boomers, which increases benefit costs.
Absent reform, Social Security could continue to pay roughly
75 percent of promised benefits. The cuts would mean that the
typical 65-year-old worker could expect Social Security to
replace 27 percent of pre-retirement income, down from 36
percent today, according to the Center for Retirement Research
at Boston College.
No surprise, then, that only 37 percent of workers are “very
or somewhat confident” that Social Security will be able to
maintain current benefit levels in the future, according to
survey research by the Employee Benefit Research Institute
(EBRI) - although confidence is much higher among older workers
From a math standpoint, potential solutions to the problem
are straightforward. The cuts can be avoided through increased
revenue, benefit reductions or some combination of the two. But
the politics are another matter.
Republicans are far from holding a unified position on the
issue. For example, U.S. Representative Sam Johnson, a Texas
Republican who chairs the House Ways and Means subcommittee on
Social Security, has proposed legislation containing two
significant benefit cuts: gradually raising full retirement ages
to 69 by 2030, and using a less generous annual cost-of-living
adjustment formula known as the chained CPI.
Meanwhile, President Donald Trump has so far held to his
campaign promise of opposing cuts. He has suggested that
economic growth will solve the problem by stimulating wage
growth and payroll tax collections - a position most economists
dismiss as unrealistic.
REPUBLICAN ENTHUSIASM LACKING
The last major Republican reform proposal dates back to the
George W. Bush administration, which proposed shifting the
program to personal savings accounts - an idea that aroused
Republican passion but that went down in flames.
“That was an idea that got people excited, but there hasn’t
been much enthusiasm for Social Security reform among
Republicans since then,” said Andrew Biggs, resident scholar at
the conservative American Enterprise Institute. Biggs worked on
Social Security reform as an associate director of the White
House National Economic Council.
Meanwhile, Democrats are in no mood to work with the Trump
administration on anything that forces a compromise on their
core values - and they have shifted significantly to the left on
Social Security reform. Representative John Larson has
introduced legislation that would not only restore trust fund
balance but expand benefits. That is by far the best approach,
since roughly half of all households have saved less than
$25,000, according to EBRI. Larson’s bill is cosponsored by more
than 80 percent of the Democratic House caucus - more than any
previous expansion bill.
The bill would increase benefits by 2 percent across the
board, shift to a more generous annual cost-of-living adjustment
that reflects spending by seniors and set a new minimum benefit
at 25 percent above the poverty line. It also would cut taxes
for millions of retirees by boosting significantly the threshold
for taxation of benefits.
The plan raises revenue by gradually increasing the payroll
tax rates that fund the program. The rate hikes would begin in
2019, and by 2042, workers and employers would pay 7.4 percent
each, instead of the current 6.2 percent.
Larson, a Connecticut Democrat, also proposes changes to the
payroll tax cap for very wealthy beneficiaries. Currently,
payroll tax is collected only on wages up to $127,200; the plan
would start collecting taxes again on wages above $400,000. That
exempts more income than many earlier expansion plans, which
either removed the cap entirely or resumed taxation at $250,000.
The payroll tax cap feature played an important role in
boosting support for expansion legislation, according to Max
Richtman, CEO of the National Committee to Preserve Social
Security and Medicare, a progressive advocacy group that
supports the bill. “It brought many of the more conservative
Democratic legislators on board,” he said.
Of course, the Larson bill is going nowhere in the
Republican-controlled Congress, so Social Security reform will
not happen before the 2018 midterm elections at the earliest -
and perhaps much later than that. But that does not mean
beneficiaries should worry about draconian cuts in 2034.
Even if reform is not achieved by 2034, Biggs thinks the
problem likely would be solved at the 11th hour through tax
increases - simply because benefit cuts must be enacted and
phased in over long periods to give beneficiaries time to
"If they were going to do this by cutting benefits, it
should have been enacted 20 years ago," he said. "If you want to
do it by raising taxes you want to wait as long as possible, so
that you get to the point where the only solution is to put more
money into the program.”
But the uncertainty on Social Security policy will continue
to undermine public confidence in the program - and that is
worrying. Meanwhile, the clock is ticking.
(Editing by Matthew Lewis)