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Promoting Economic Growth through Social Security Reform | Committee for a Responsible Federal Budget

A number of Americans, politicians and advocates see the Social Security issue as simply increasing benefits to boost senior incomes or to trim benefits or raise taxes to keep the program solvent. It’s not that simple.

We should be looking at ways to address overall retirement incomes, a changing workforce, and increasing life expectancy. All this cannot be done simply by raising taxes on working Americans.

Consider this article.

Promoting Economic Growth through Social Security Reform

SEP 19, 2019 | SOCIAL SECURITY  BY MARC GOLDWEIN, MAYA MACGUINEAS, AND CHRIS TOWNER

Executive Summary

As the population ages and an increasing share of Americans exit the workforce for retirement, economic growth is projected to slow considerably. The aging of the population also undermines retirement security and puts the Social Security program at risk.

Due to the increasing number of beneficiaries relative to workers, Social Security spending already exceeds revenue. By 2035, the program’s trust funds will be exhausted, triggering an automatic 20 to 25 percent across-the-board benefit cut  under current law. Social Security spending and revenue must be brought in line to prevent insolvency.

However, a thoughtful Social Security reform plan should go beyond simply assuring actuarial soundness by also improving retirement security and economic growth. In particular, Social Security reform should increase national income by promoting work, investment, and fiscal sustainability.

In this paper, we propose a Pro-Growth Social Security Reform framework, which would both shore up Social Security and grow the economy at a faster pace.

Our framework includes four parts:

✔️Promote delayed retirement and productive aging by increasing Social Security’s retirement ages while insulating vulnerable workers with an Age 62 Poverty Protection Benefit (62-PPB) to boost benefits for low-income workers.

✔️Reward work at all ages by counting all years of work toward benefits and by calculating benefits based on each year’s earnings rather than average 35-year lifetime earnings.

✔️Increase savings and investment by automatically enrolling workers in add-on “Supplemental Retirement Accounts” (SRAs) and placing a share of wages, on top of the payroll tax, in those SRAs unless a worker chooses to opt out.

✔️Improve certainty and sustainability by making Social Security sustainably solvent through a mix of progressive revenue and benefit adjustments.

Source: Promoting Economic Growth through Social Security Reform | Committee for a Responsible Federal Budget

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7 replies »

  1. @Shayne Cook – I agree with your take. I retired at age 50 with a military pension as my only income. I used credit to fund my lifestyle for 12 years, ran up $28,000 in debt, not a wise thing, but I was tired of low pay all the BS and valued my time more than what employers were willing to pay me. At 62 I started SS benefits and have paid off all but $6,000. For over a year now all my debt has been moved to zero interest accounts and will = zero in Sept 2020. Starting in Jan 2020 I will be able to save and invest all of mine and my wife’s SS benefit. How the so called experts can say just because someone retires they are going to stop spending is a bunch of crap. I spend most of my money on travel and have been away from home since May 10th and will not be back home until Nov 1st. As more Baby Boomers retire there will be a flood of spending on enjoying life in retirement. Many experts say the BB generation will transfer Trillions of dollars to their families once they die, this money will be a boom to the economy.

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  2. The key is to increase the ceiling for payroll tax and make it automatically adjust higher with the goal of balancing the fund, including increased payees and inflation. In one sentence, you take care of the whole problem of solvency. The tax law could also incentivize personal retirement saving by sheltering such savings at a guaranteed lower tax rate (eg long term capital gains rate) and full tax penalties for early withdrawal. We need to get people to save for their retirement.

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  3. The death-knell of consumer-driven economies… fertility rates are decreasing world-wide. It’s not just happening in first world countries who are now trying to shore up their population decline with massive third world immigration [which is only a temporary fix.] The projection is… sometime around the end of this century world population will begin to decline.

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  4. First of all… the unfair ‘never indexed for inflation since 1983’ federal income tax on Social Security income must be corrected. Even the portion of one’s SS going to Medicare B premium is subject to federal income tax. When I was working, I was NOT required to pay federal income tax on my income going to my corporate health insurance premium!

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  5. Mr. Quinn:

    This “Executive Summary” begins with a gross fallacy in the very first sentence. I’ve seen nothing that would indicate “economic growth is projected to slow considerably.” Logically, the opposite is true. Consider that, as more people retire, an equally greater number of non-retirees are drawn into the workforce and at elevated positions/salaries previously held by those same retirees. Retirees aren’t dead – they continue to both consume and invest, the two most prominent categories of GDP.

    I have three suggestions to help resolve the Social Security solvency issue that aren’t discussed above (or anywhere else I’ve seen for that matter):

    1. Remove the wage base limit (currently, $132,500) subject to Social Security payroll tax. The Medicare portion of payroll tax has no wage base limit, and I don’t recognize any benefit for having a limit on the Social Security portion. (See Fed Form 941 instructions.)

    2. Route all Federal Taxes paid, attributable to the tax on Social Security income (up to 85% of Social Security is taxable), BACK to the Social Security Trust Fund – instead of to the “general revenue fund” as is now the case. (Full disclosure: I’ll pay Fed tax on about $7,000 of my social security income this year. Even at the 12% marginal tax rate, that is $840 in taxes that should be routed back into the Social Security Trust Fund.)

    3. Expand the tax exemption for Long Term Capital Gains (LTCG) and Qualified Dividends (QD) from the current first two tax brackets (12% – $38,700) to include at least the third bracket (22% – $82,500). Note that the third bracket includes current median household income level of approx. $64,500. This is similar in nature to the “Executive Summary” Checkpoint 3, but applies investment tax incentive rather than mandated re-direction of income. While this, or the Checkpoint 3 suggestion, will not improve Social Security solvency directly, they will both reduce the likelihood that Social Security alone will be the sole source of income for retirees.

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    • In 1990 a total of 66.5% of the US population was in the workforce. In 2018 only 62.9% was in the US workforce. My source did not break down the reason for reduction. It could be retirements, jobs lost to overseas, or people who just quit looking for work. But if 3.6% are not earning as much money as they could, one can logically assume that they are not spending it either which would have an effect on the GDP.

      Another issue is that the US fertility rate is currently 1.9% and falling. 2.1% is required to maintain enough new babies in the population to take care of the older generation in the US. We tax the crap out of the future generations and when there are more older than young people, the young have to pay more and more until they break. Social Security is truly paid for by future workers, it was not paid for in its entirely by the retired workers. Beside Social Security, we have the national debt and every state has bonds for building schools to roads. As you tax the young more, the less money they have to spend on the GDP. Elderly will be spending it on medical care.

      This is another reason why the citizenship question was important on the census. How many US citizens are actually in the US labor force paying their taxes VS illegals or permitted visa workers sending their money offshore? The citizenship question would have given better data on how many Americans that the government must take care of later. Some countries have had to invite workers into their country because their fertility rates are too low. Some countries have lost their national identities because they allow too many immigrants in too fast. We need to get a handle on immigration and count everybody but congress fails to reform the immigration laws. The new legal immigrants may be able to reverse the US fertility rate.

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      • Hi Dwayne,

        I basically agree with some of your second and third paragraphs. But there are some misleading information,comparisons and conclusions in your first paragraph – as follows:

        1. The workforce percentages you cite are close to actuals, but not quite indicative of what is going on. First, the percentages are actually of “working age” population, typically 18-65 or 16-65 – not total population. There was in fact a drop in “participating” workforce in 2008 due to the recession. That workforce participation rate has been increasing steadily with economic recovery, and continues to do so. And lots of folks (myself included) continue to work/produce after age 65, even though we are considered “no longer in the workforce”. Point being, relying solely on published labor participation rates is grossly misleading.

        2. Those not in “participation” are still consumers, if for no other reason than various unemployment benefits, retirement benefits, investment incomes and other income sources. You mention “logical” negative affects on GDP attributable to lower workforce participation rates. But that phenomena has NOT manifested in national income statistics. The Consumption component of GDP has remained elevated as a percentage of GDP both during the recession and after the recession. Most of the GDP decline in the 2008-2009 recession was attributable to dramatically reduced Investment spending, not reduced Consumption spending. See bea.gov, GDP Table 1.1.5

        3. The conclusion that lower workforce participation rate automatically results in lower GDP is also challenged by the most current U.S. Census bureau income statistics – see https://politicalcalculations.blogspot.com/2019/09/the-distribution-of-income-in-us-for.html
        And pay particular attention to Mark Perry’s contribution/conclusions at the bottom of the page.

        Again, relying solely on published “labor participation rates” as an indicator of future GDP growth/performance is grossly misleading. And it isn’t substantiated by other economic performance metrics such as GDP (bea.gov) OR individual/household Income metrics (census.gov).

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