This is how CBSNEWS.com describes a recent Republican proposal to fix Social Security.
The GOP recently announced its proposal to eliminate Social Security’s funding gap with large benefit reductions accompanied by tax cuts on affluent retirees, but with no rise in revenue to the system through tax increases.
Now read the facts from the same source. There are no large benefit reductions and no tax cuts just for affluent retirees. There are, in fact, improved benefits and a decades-long time frame for the gradual benefit changes. This doesn’t mean these are the only changes that could be applied or necessarily the best, but the criticism of no rise in revenue through tax increases is an actual benefit for average workers. I suppose the article is alluding to raising the taxable wage base, but that change alone does not solve the problem even for the next 75- years.
I would also use modest and gradual payroll tax increases on a regular basis to actually pay for the benefits Americans want from Social Security. Increasing rates alone could close the entire solvency gap; even a gradual increase of 0.3 percentage points each for employees and employers (or less than $3 per week for an average earner), could close about one-fifth of the gap. The tax rate was last increased in 1990, twenty-seven years ago.
Keep in mind, none of these changes make Social Security sustainable, they make it solvent for a set number of years into the future using many long-term assumptions.
Let’s look at each item they have listed:
- Raise the normal retirement age 👋 It’s true that since enactment of SS life expectancy has increased, but the counter argument is that this has not benefited everyone equally, especially not lower-income individuals so this one needs work.
- Change the formula for calculating benefits 👍 This is a clear plus for lower-income and middle class workers. The SS formula already favors lower-income workers, this would enhance that and increase benefits slightly.
- Change the COLA calculation 👍 Some people will see this as unfair, but that is not so. All alternative CPIs have pluses and minuses, even the CPI-E for elderly can produce a lower increase than the standard CPI-W. Something has to be done to manage the future growth in benefits already being paid. No COLA for higher income beneficiaries is fair. They should have sufficient resources to take care of their own COLA.
- Eliminate the earnings test 👍 Why not? This is a benefit for mostly lower-income individuals who need to or want to work to supplement Social Security.
- Eliminate federal income taxation of Social Security retirement and disability benefits 👍 The income used to determine taxability of the SS benefit is not indexed so every year more people have a portion of their SS benefit taxed. CBS characterizes people earning $34,000 as wealthy – I don’t think so. This change would be a plus for middle class retirees (and yes, those higher income as well). However, the additional tax collected on those paying on 85% of their SS benefit goes to Medicare.
- Lump sum payment option 👎 Not sure on this one. I suppose there is some benefit to the trust by eliminating long-term liability, but seems to me there is a risk to beneficiaries in trading cash for future income. Too many people could grab the gold to their long-term detriment.
The GOP recently announced its proposal to eliminate Social Security’s funding gap with large benefit reductions accompanied by tax cuts on affluent retirees, but with no rise in revenue to the system through tax increases. House Ways and Means Social Security Subcommittee Chairman Sam Johnson, R-Texas, introduced the Social Security Reform Act of 2016, a bill that intends to keep the system solvent for 75 years. Currently, Social Security faces a projected 21 percent across-the-board benefit reduction in 2034 if the system isn’t reformed by legislation.
The Social Security Office of the Actuary projects that Johnson’s proposal would make the Social Security trust fund fully solvent for 75 years, eliminate the current-law unfunded obligation of $11.4 trillion and produce an increase in the funded status of $11.9 trillion. That’s the net result of:
a $2 trillion decrease in revenue to the system by eliminating income taxes on Social Security benefits of affluent retirees, and
a $13.9 trillion decrease in the total value of benefits paid, primarily due to changing the benefit formula, reining in cost-of-living adjustments (COLAs) for retirees and increasing the normal retirement age (the age at which people can begin drawing their full Social Security benefits) for workers attaining age 62 in 2023 or later.
The GOP proposals don’t include any revenue increases to shore up the system. In fact, the proposal overshoots the current funding deficit with net benefit cutbacks of 122 percent of the current deficit in order to fund a tax decrease with a present value of 17.5 percent of the deficit.
The GOP proposal contains 15 provisions. These are the most significant of those features:
Raise the normal retirement age for workers attaining age 62 in 2023, gradually increasing it from the current age of 67 to age 69 for workers attaining age 62 in 2030.
Change the formula for calculating benefits for retirees and disabled worker beneficiaries becoming newly eligible in 2023, phasing in changes over 10 years. The changes would slightly increase benefits for below-average earners and slightly decrease benefits for above-average earners, and would also favor workers who have paid into the system for 35 years. In addition, provide minimum benefits for workers who have paid into the system for more than 10 years.
Beginning with the December 2018 COLA for current retirees, use the chained-weighted CPI to calculate COLAs and provide no COLA if the retiree’s modified adjusted gross income (MAGI) is above $85,000 for single tax filers and $170,000 for joint tax filers.
Eliminate the earnings test beginning in January 2019. This test reduces benefits for beneficiaries who are younger than Social Security’s normal retirement age (currently age 66), are currently receiving Social Security benefit payments and have income from wages or self-employment that exceed $16,920 per year in 2017. Under current law, the earnings test no longer applies once a retiree attains the normal retirement age.
Eliminate federal income taxation of Social Security retirement and disability benefits in 2054 and later, phased in from 2045 to 2053. Currently, single tax filers with combined “income” (adjusted gross income plus nontaxable interest income and one-half of their Social Security benefit) greater than $25,000 may pay income tax on up to 50 percent of their benefits. If combined income as defined above exceeds $34,000, up to 85 percent of the benefits may be taxable. These thresholds are $32,000 and $44,000 for joint tax filers.
Provide an option for a worker to forgo a portion of the delayed retirement credit for postponing Social Security benefits beyond normal retirement age and instead receive a lump sum payment.