4 Ways to Fix Social Security
Social Security celebrates its 80th birthday today, and the popular program that provides paychecks for 44 million elderly Americans is in need of a safety net of its own.
As the amount claimed by recipients continues to outpace the amount of money contributed by workers, the system will need to dip into its reserves to keep up with its obligations by 2020. Within 15 years after that (if nothing changes), those reserves will be gone and the system will only be able to pay 77 cents on every dollar owed, an amount that will continue to decrease with time.
The problem is even more acute given that future retirees won’t have the same access to pensions that many current retirees use to fund their retirement, and younger workers haven’t saved nearly enough to cover the costs they’ll face when they stop working.
To close the projected gap, the country needs to raise revenue, reduce benefits or some combination of the two. Here are four of the most commonly proposed solutions:
1. Raise the retirement age. For most Americans, the full retirement age (at which you can get full benefits) ranges from 65 through 67. Advocates of this solution would reduce the amount the government pays in Social Security by gradually pushing back the age at which you’re eligible for full benefits.
The drawback: Many Americans are already forced into retirement before they reach age 65. If they claim early and receive reduced benefits they may not have enough money to meet their basic needs. Also, workers in physically demanding jobs many not be able to work those extra years.
2. Raise the payroll cap. Social Security is funded via payroll taxes, which currently are only levied on the first $118,500 of income. That means that high earners effectively pay a much lower rate toward Social Security than others. Hiking or eliminating that cap, advocates say, would create a fairer system and increase revenue.
The drawback: Critics of this solution claim that increasing taxes on middle- and upper-income earners would reduce their income and stifle the country’s economic growth.
Related: 6 Popular Social Security Myths Busted
3. Institute a means test. While the vast majority of recipients (80 percent, per AARP) rely on Social Security as an integral part of funding their retirement, extremely high net worth individuals don’t need the additional income. This solution would create a net worth or retirement income threshold over which eligibility for social security phases out.
The drawbacks: It could be politically difficult to settle on a threshold, which might vary depending on the geography of a recipient. Plus, this would require people to pay into a system from which they get no benefits.
4. Freeze the cost of living adjustment. Social Security payments have historically been adjusted based on inflation as measured by the Consumer Price Index. This has been minimal in recent years, but the long-term, compounding effect of inflation makes this provision incredibly expensive.The drawbacks: For many people, Social Security is the only inflation-linked retirement income stream that they have. Limiting it could push some retirees over the financial edge as prices rise.
Majority of Tax Cuts Going to Filers Earning More Than $100K: JCT
Ahead of a House Ways and Means Committee hearing scheduled for Wednesday, the Joint Committee on Taxation prepared an analysis of the distributional effects of the 2017 Republican tax bill. The New York Times’ Jim Tankersley highlighted the fact that according to the JCT analysis, about 75 percent of the individual and business benefits of the tax cuts will go to filers earning more than $100,000 in 2019. And nearly half of the benefits will flow to filers earning over $200,000.
The Trump Budget's $1.2 Trillion in 'Phantom Revenues'
President Trump’s 2020 budget includes up to $1.2 trillion in “potentially phantom revenues” — money that comes from taxes the administration opposes or from tax hikes that face strong opposition from businesses, The Wall Street Journal’s Richard Rubin reports, citing data from the Committee for a Responsible Federal Budget. That total, covering 2020 through 2029, includes as much as $390 billion in taxes created under the Affordable Care Act, which the president wants to repeal.
The $1.2 trillion in questionable revenue projections is in addition to the White House budget’s projected deficits of $7.3 trillion for the 10-year period. That total is itself questionable, given that the president’s budget relies on optimistic assumptions about economic growth and some unrealistic spending cuts, meaning that the deficits could be significantly higher than projected.
Republicans Push Ahead on Medicaid Restrictions
The Trump administration on Friday approved Ohio’s request to impose work requirements on Medicaid recipients. Starting in 2021, the state will require most able-bodied adults aged 19 to 49 to either work, go to school, be in job training or volunteer for 80 hours a month in order to receive Medicaid benefits. Those who fail to meet the requirements over 60 days will be removed from the system, although they can reapply immediately.
The new work requirements include exemptions for pregnant women, caretakers and those living in counties with high unemployment rates and will apply only to those covered through the expansion of Medicaid under the Affordable Care Act. There are currently about 540,000 people on Medicaid in Ohio who receive coverage through the expansion, according to Kaitlin Schroeder of The Dayton Daily News, compared to roughly 2.6 million Medicaid recipients in the state overall.
Once implemented, the work requirements are expected to result in 36,000 people losing their Medicaid eligibility, according to state officials, though critics say the reductions could be significantly larger. Similar work requirements in Arkansas pushed 18,000 people off the Medicaid rolls in six months.
A larger GOP project: The creation of new work requirements is part of a larger effort by Republicans to limit the expansion of Medicaid, says The Wall Street Journal’s Stephanie Armour. Since the Affordable Care Act passed in 2010, 36 states have expanded their Medicaid programs under the ACA and the number of people in the program has grown by 50 percent, from roughly 50 million to about 75 million. But many red-state governors have expressed concerns about the cost of Medicaid expansion and worries about a lack of self-sufficiency among the able-bodied poor, and are embracing new limitations on the program for both fiscal and political reasons.
In 2017, the White House in 2017 gave states the green light to explore ways to limit the reach and expense of their Medicaid programs. Governors have proposed a variety of new rules, which require waivers from the federal government to enact. Kentucky, for example, wants to drug-test Medicaid recipients, and Utah wants a partial expansion and a cap on payments. Kaiser Health News summarizes the variety of waivers states have requested, which are governed by Section 1115 of the Social Security Act, in the chart below.
Legal challenges: Efforts to restrict Medicaid have received legal challenges, and U.S. District Judge James Boasberg blocked work requirements in Kentucky last year. The same judge, who has expressed doubts about the administration’s approach to Medicaid, will rule on the legality of work requirements in both Kentucky and Arkansas by April 1.
The bottom line: The Trump administration is seeking fundamental changes in how Medicaid works. Even if Boasberg rules against work requirements, expect the White House and Republican governors to continue to push for new limitations on the program.
Chart of the Day: Trump's Huge Proposed Cuts to Public Investment
Ben Ritz of the Progressive Policy Institute slams President Trump’s new budget:
“It would dismantle public investments that lay the foundation for economic growth, resulting in less innovation. It would shred the social safety net, resulting in more poverty. It would rip away access to affordable health care, resulting in more disease. It would cut taxes for the rich, resulting in more income inequality. It would bloat the defense budget, resulting in more wasteful spending. And all this would add up to a higher national debt than the policies in President Obama’s final budget proposal.”
Here’s Ritz’s breakdown of Trump’s proposed spending cuts to public investment in areas such as infrastructure, education and scientific research:
Chart of the Day: The Decline in Corporate Taxes
Since roughly the end of World War Two, individual income taxes in the U.S. have equaled about 8 percent of GDP. By contrast, the Tax Policy Center says, “corporate income tax revenues declined from 6% of GDP in 1950s to under 2% in the 1980s through the Great Recession, and have averaged 1.4% of GDP since then.”
