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Changes Must Come To Social Security
According to Forbes, changes will be made in Social Security. The questions are: What will they be? When will they be made?
If nothing is changed, the Social Security retirement trust fund will run out of money. The 2020 report from the trustees of Social Security estimated that would occur in 2034. But that estimate was based on data through the end of 2019, before the pandemic recession reduced payroll tax revenue and caused many people to begin collecting retirement benefits earlier than they had planned.
The trustees won’t issue an updated report for a few more months, but it likely will estimate the trust fund will run out of money before 2034. Other sources have estimated the trust fund will be exhausted between 2030 and 2032.
Social Security won’t end when the trust fund runs out of money. The program receives payroll taxes each year, and those are estimated to be enough to pay 75% to 80% of promised benefits indefinitely.
But if Congress doesn’t act, when the trust fund is empty there will be an automatic across-the-board 20% to 25% reduction in all benefits.
During the 2020 campaign, Joe Biden proposed changes to Social Security similar to those in Congressman John Larson’s (D-CT) Social Security 2100 Act.
Biden proposed increasing the guaranteed minimum benefit to 125% of the federal poverty level, increasing benefits by 5% to those who’ve been receiving them for at least 20 years, and increasing payments by 20% to widows and widowers. He also would increase the annual cost of living adjustment in benefits.
The benefit increases would be paid for by imposing Social Security payroll taxes on salaries above $400,000. The taxes currently aren’t imposed on wages above $142,800. In addition, over time the payroll taxes would be phased in on wages between $142,800 and $400,000. Larson also would gradually increase the payroll tax rate to 14.8% from the current 12.4%.
But those taxes at best would allow the trust fund to remain solvent for only a few more years, depending on the economic assumptions used.
The opposite approach to improving Social Security’s solvency was proposed by former representative Sam Johnson (R-TX) in the Social Security Reform Act of 2016. This proposal would move Social Security closer to its roots as a program providing only a minimum income to older Americans regardless of the amount of taxes they paid into the system.
Johnson’s proposal, like the Biden and Larson proposals, would raise the minimum guaranteed benefit and increase benefits of those who’ve been receiving them for a long time. It also would eliminate income taxes on benefits.
The Johnson plan also would raise the retirement age, reduce benefits for those with higher lifetime incomes, reduce cost of living adjustments, and limit benefits for spouses and children of higher-income earners.
Once the Social Security trustees issue their 2021 report updating the solvency of the system, there is likely to be more urgent thinking and discussions about reforming the system. With the demise of the trust fund about 10 years away, most in Congress will realize it’s time to act.
To close the gap of 20% to 25% of promised benefits, some combination of higher taxes and lower benefits must occur. If some benefits are increased, others must be decreased or taxes must increase even more.
The Biden, Larson, and Johnson proposals cover the range of possible actions, and the final product from Congress is likely to include elements from all the proposals.
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