Can We Fix Social Security? 

            “Everyone talks about the weather, but nobody does anything about it.”

                    — attributed to Mark Twain

            The same is often said about Social Security. In fact, those in Congress try to make changes every year.

            Seriously.  Not a year goes by without multiple pieces of proposed legislation being evaluated for cost and impact.

Many Calls To Action

            In most years, every proposal dies without action. According to the Social Security website, the actuaries have evaluated seven pieces of legislation so far this year.

            Over the last 10 years, 94 pieces of legislation were proposed. The record for the period goes to 2016. It had 15 evaluated proposals. (You can access them all here.)

            Some topics come up again and again.

            Teachers and other government service workers can have their Social Security benefits reduced by the hated Windfall Elimination Provision (WEP) or by the Government Pension Offset (GPO). While ending these provisions is proposed on a yearly basis, it never goes anywhere even though the actuaries regularly declare eliminating them would have a “negligible” effect on the finances of Social Security.

             Teachers just can’t catch a break.

            This legislation was long championed by Kevin Brady, R-Texas. He retired last year, but the torch has been picked up by Jodey Arrington, R-Texas, and Richard Neal, D-Mass., with different proposals. You can see the proposals here and here.

The Elephant in the Room

            But these proposals, and many others, don’t deal with the elephant in the room. That’s the projected Social Security revenue shortfall over the next 75 years. Measured in dollars, the figure is in trillions. Measured as a percent of payroll, it’s 3.61 percent, a figure that suggests a massive increase in the payroll tax.

            More pressing, the exhaustion of the Social Security trust fund is projected to happen by 2033.

            Then, under current law, benefits would have to be cut by an estimated 23 percent so that program spending would not exceed program revenue.

            This is up close and personal for all but the very rich, whether working or retired.

Raise Taxes or Cut Benefits?

            Our situation could be viewed as a “raise the bridge or lower the water” problem: Either reduce Social Security benefits or increase Social Security revenue. We can also do some combination of both. (I’ll get back to that, later.)

            Rep. Sam Johnson, R-Texas, who died in 2020, took the lower the water route. His 2016 proposal consisted entirely of benefit cuts. I think the vast majority of Americans, particularly younger workers, can be grateful his legislation went nowhere. Even better, no one has picked up his torch.

            That leaves us with raising the bridge.

            How can that happen?  By increasing Social Security revenue. That means higher taxes, for some or all. Proposals by Bernie Sanders, D-Vt., are the polar opposite of what Sam Johnson was seeking. But Sanders is still in the ring. He has updated his proposal every year. His most recent proposal, filed in February, calls for four types of benefit increases and three significant tax increases.

           A quick examination shows that at least 95 percent of all Americans would enjoy higher benefits without any increase in taxes. The other 5 percent would have tax increases that would dwarf any possible change in benefits.

           Given the proportions here, you’d think Sanders’ proposal would be a slam dunk: Free money for 95 percent of the population.  It’s just possible that enough workers still aspire to high income and wealth that they wouldn’t vote for higher taxes on their desired future.

Finding Money Where It Is

           Here are Sanders’ proposed changes:

Benefit Increases:

            — An increase in how benefits are calculated that would increase benefits for all but would have the greatest impact on the lowest-paid workers. Cost: 1.46 percent of payroll.

            — Use the consumer price index for the elderly (CPI-E) instead of the currently used CPI-W to provide larger inflation adjustments. Cost: 1.41 percent of payroll.

            — A tweak to the minimum formula for low-income workers so their benefit would be at least 125 percent of the poverty level. Cost: 0.11 percent

            — Continue benefits for children of disabled or deceased workers until they reach age 22 if the child is in high school, college or vocational school. Cost: 0.05 percent of payroll.

Tax Increases:

            — Extend the combined payroll tax rate to all earnings over $250,000. Income: 2.46 percent of payroll.

            — A new 12.4 percent tax on investment income for highe- income households ($200,000 single, $250,000 joint) with proceeds to Social Security trust funds. Income: 1.93 percent of payroll.

            — A 16.2 percent tax on investment income for S-corporations and limited partners for tax returns with income in excess of $200,000 single, $250,000 joint. Income: 0.92 percent of payroll.

            To be sure, Sanders’ proposals would be a gigantic shift in taxation toward those with the highest incomes.  But taxes must be paid from those with income, not those without it. Willie Sutton had the best explanation: High-income people are like banks. They’re where the money is.

            And guess where the increases in income have gone over the last half-century? To those with the highest incomes, the top 0.1, 1 and 5 percent. Whether you read a left-leaning economist like Thomas Piketty or a libertarian observer like Charles Murray, this demonstrates a profound shift of income and loss of security over the last 50 years for American middle-income workers.

            With homes and cars unaffordable for most, rapidly expanding credit card debt and banks not making loans, there is a high probability that we are only a major downturn away from the 95 percent realizing just how threatened they are. The top 1 percent may be able to control the legislation that protects their wealth, but the 95 percent can build really large mobs.

            Is there another path? Do we have other choices?

            I hope so. I think so.

Social Security Is a Shared Problem

            We need to put aside our overdeveloped individualism and think about shared sacrifices. How could we all share the burden?

            Fortunately, there’s a tool to help us. The website of the Committee for a Responsible Federal Budget has an interactive calculator called “The Reformer, an interactive tool to fix Social Security.” It allows us to make changes to the benefit formula, revenues and other benefits to see what combination could put Social Security into balance for the next 75 years.

            Here’s a combination of changes I put together to keep the system solvent until 2084. It’s a mugwump solution – tinkering to make the smallest possible changes – but avoids huge tax increases on high incomes.

            Am I advocating this? No. Just trying to show that our situation is a long way from hopeless. But we need less ideology and more pragmatism in those we elect to office. And we need it now.

            Here’s another set of selections that transfers the burden to those with higher incomes.

Think of It as a Trillion Dollar Do-It-Yourself Project

              My suggestion: Try it yourself. Make choices that work using the calculator. Send your list to your representatives and senators. Let them know that if you can do this “in your spare time at home,” surely they can do better, sooner.

            Your choices will show that it can be done. And maybe how it should be done.

            P.S. For policy wonks and number nerds: The CRFB calculator offers an extensive list of changes that can move the financial future one way or another. But it isn’t a complete list. For that, see the complete, 35-page list of tweaks and changes compiled by the Social Security actuaries. You can download it here.

Related columns:

Scott Burns, “Social Security Reform: If You’re Under 50, Watch Out,” 01/01/2017: https://scottburns.com/social-security-reform-if-youre-under-50-watch-out/

Scott Burns, “Lower Wage Workers Also Likely to Lose in Social Security Reform: 01/08/2017: https://scottburns.com/lower-wage-workers-also-likely-to-lose-in-social-security-reform-2/

Scott Burns, “The Be-Careful-What-You-Wish-For-Economy,” 01/15/2017: https://scottburns.com/the-be-careful-what-you-wish-for-economy/

Scott Burns, “Social Security: A Tale of Two Menus,” 02/28/2017: https://scottburns.com/social-security-a-tale-of-two-menus/

Sources and References:

Office of the Chief Actuary’s Estimates of Proposals to Change the Social Security Program or the SSI Program: https://www.ssa.gov/oact/solvency/index.html

Committee for a Responsible Federal Budget, “The Reformer, an interactive tool to fix Social Security,” https://www.crfb.org/socialsecurityreformer/

Evaluation of Jodey Arrington proposal: https://www.ssa.gov/oact/solvency/JArrington_20230905.pdf

Evaluation of Richard Neal proposal: https://www.ssa.gov/oact/solvency/RNeal_20230621.pdf

Evaluation of Bernie Sanders proposal: https://www.ssa.gov/oact/solvency/BSanders_20230213.pdf

Social Security Administration: “Summary of Provisions That Would Change The Social Security Program,” https://www.ssa.gov/oact/solvency/provisions_tr2015/summary.pdf

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

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(c) Scott Burns, 2023