Even as most policymakers continue to ignore the looming insolvency of Social Security—and the 23% reduction in benefits it will produce in seven years—policy experts across the political spectrum increasingly are leaning into the challenge, often in creative new ways.
While they have developed broadly different solutions, they share similar goals: To restore long-term solvency of the program while improving its ability to support lower-income workers in old age. At a time when Congress and the White House are incapable of even seriously discussing the subject, their ideas are a breath of fresh air.
A Clear Problem
The problem is clear: The Social Security trust fund will become insolvent by the end of 2032. This date may shift by a few months one way or the other, depending on the state of the economy, but it is largely baked in the demographic cake.
Yet, Congress and the White House have only made the problem worse. When the Democrats still controlled government, Democrats and Republicans in Congress joined to expand benefits for some retired government workers without paying for the bonus. In July, Republicans created a new income tax deduction for older adults and extended low 2017 income tax rates that will reduce revenues for the already cash-strapped retirement fund.
2032 may seem a long way off. But it means the program will be unable to pay full promised benefits during the term of the next president. Politicians rarely act absent an immediate crisis. But that is exactly what Donald Trump’s successor will face.
There is no shortage of good ideas. But action will require lawmakers to acknowledge Social Security cannot be saved without some combination of tax increases and benefit restructuring.
Some experts rely more on tax hikes to restore the program’s fiscal soundness, others on benefits cuts. All agree on the need to redesign benefits to better support low-income older adults. But they disagree on far to shift from the current income-based benefit system.
Here is a brief look at four plans released just this year that cross the political spectrum. They come from experts at the Progressive Policy Institute, the Brookings Institution and the Urban Institute, The Committee for a Responsible Federal Government, and the Cato Institute. They follow older plans offered by the Bipartisan Policy Center, my Urban Institute colleague Gene Steurele, and many others.
Progressive Policy Institute: PPI would calculate benefits based on years worked rather than lifetime earnings, a step that would increase future payments to lower-income workers and reduce them for those with high incomes. It also would encourage people to continue working as they age, an important feature as the years of active life increase for those age 65 or older.
It would replace the payroll tax with a value-added consumption tax.
PPI also would gradually increase both the minimum and maximum retirement ages, tied to life expectancy. It would revise annual cost of living increases and cap them for high-income seniors, and enhance survivor benefits but limit spousal benefits. It also would raise disability benefits but reform the program to encourage people with disabilities who can work to continue to do so without losing benefits.
The Brookings Institution and Urban Institute: Written by Wendell Primus and Tara Watson at Brookings and Jack Smalligan at Urban, this plan would make several changes to the program.
Among the biggest: It would raise the cap on taxable wages so it covers 90 percent of a worker’s salary. It also would raise the Social Security payroll tax rate from 12.4% to 12.6% and tax payments to all owners of pass-through businesses, such as partnerships and sole proprietorships.
At the same time, it would tax all benefits for high-income beneficiaries, gradually raise the retirement age, and make several other benefit formula changes. It would phase out the current spousal benefit but increase payments for surviving spouses and children of workers who are disabled or dead, and create a new disability benefit for older workers who can no longer do their jobs.
Committee for a Responsible Federal Budget: CRFB proposed two major changes, one raising taxes and the other restructuring benefits. Currently, the Social Security and Medicare payroll tax is imposed only on wages, divided equally between employers and employees. CRFB would tax employers on all compensation, including benefits such as health insurance, retirement contributions, and non-wage comp such as stock options.
CRFB also would cap Social Security’s annual cost of living adjustment for high-income retirees. All beneficiaries would receive some increase, but it would be limited for those with the highest incomes. This change could easily be combined with benefit increases for low-income workers.
Cato Institute: Researchers at the libertarian think tank have a different approach but a similar goal. In their new book, Reimagining Social Security, Romina Boccia and Ivane Nachkebia draw on the experiences of other developed countries.
Their ultimate goal is to fundamentally restructure the retirement system by targeting Social Security benefits to those older adults who most need support while increasing incentives for private savings. In effect, they’d turn Social Security into more of a guaranteed income, anti-poverty program rather than a retirement savings system.
Incremental changes could include raising the eligibility age for full benefits; adjusting cost-of-living increases and eliminating them entirely for high-income older adults; tying initial benefits to prices rather than wages; and flattening benefits by delinking them from lifetime earnings.
The authors also write favorably about policies in countries such as Germany and Canada that automatically raise taxes and cut benefits if their public retirement systems fall out of financial balance.
While there are many differences among these emerging plans, there is surprising overlap as well. Each raises important questions and concerns. But most share common goals and, most important, they are focusing public attention on an issue that politicians wish would go away. It won’t and it is long past time pols pay attention.
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