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.
Wages Are Finally Going Up, Sort of
Average hourly earnings last month rose by 2.9 percent from a year earlier, the Labor Department said Friday — the fastest wage growth since the recession ended in 2009. The economy added 201,000 jobs in August, marking the 95th straight month of gains, while the unemployment rate held steady at 3.9 percent.
Analysts noted, though, that the welcome wage gains merely kept pace with a leading measure of inflation, meaning that pay increases are largely or entirely being canceled out by higher prices. “The last time unemployment was this low, during the dot-com boom, wage growth was significantly faster — well above 3.5 percent,” The Washington Post’s Heather Long wrote. The White House Council of Economic Advisers this week issued a report arguing that wage gains over the past year have been better than they appear in official statistics.
Cost of Trump’s Military Parade Rising Fast
It looks like President Trump’s military parade is going to cost a lot more than the initial estimate suggested – about $80 million more.
The Department of Defense pegged the cost of the parade at roughly $12 million back in July, but CNBC reported Thursday that Pentagon officials have increased their estimate to $92 million. The total consists of $50 million from the Defense Department and $42 million from other agencies, including the Department of Homeland Security.
The parade, which President Trump requested after attending a Bastille Day military parade in Paris last year, is scheduled for November 10 and will reportedly include aircraft, armored vehicles and soldiers in period uniforms. Abrams tanks, which weigh roughly 70 tons apiece, will also be included, CNBC said, despite concerns about heavy military equipment ripping up the streets of Washington. A Pentagon analysis apparently found that the armored vehicle’s treads would not cause any damage.
The parade is expected to begin at the Capitol, continue past the White House and end at the National Mall, according to earlier reports from NBC News.
Quote of the Day: Time to Raise Taxes?
“Tax revenue as a percentage of gross domestic product is expected to be 16.5 percent next year. The long-term average in a full-employment economy is 18.5 percent of GDP; if revenue were at that level for the coming decade, debt would be $3.2 trillion lower and the 10-year fiscal gap would be halved. Returning to past revenue levels, however, will be inadequate over time, because an aging population will increase Medicare and Social Security costs. This need not pose a problem: Revenue was roughly 19 percent of GDP in the late 1990s, and economic conditions were excellent.”
– Former U.S. Treasury Secretary Richard E. Rubin, writing in The Washington Post
Quote of the Day: When Tax Cuts Pay for Themselves
“You … often hear the claim that a lot of tax cuts will ‘pay for themselves,’ that they’ll cause so much additional economic activity that the revenue feedback from that activity will fully offset the direct revenue loss caused by the tax cut so that you end up making money for the federal government, or at least not losing any money. Now, of course that is theoretically possible and it would happen at extreme rates. I mean if a country had a 99 percent flat rate income tax and lowered it to 98 percent, I believe that they almost certainly would collect more revenue at the 98 percent rate than they did at the 99 percent rate. But the idea that this type of effect would occur at today’s tax levels just requires responses that are much bigger than statistical evidence would support and I think much bigger than common sense would indicate if you just ask people how they themselves would react to the tax cut.”
-- Alan Viard, tax policy expert at the American Enterprise Institute
Map of the Day: Gas Taxes
It’s summertime and the driving is anything but easy if you want to get to your favorite beach or mountain cabin for a well-deserved break. As lawmakers consider a plan to raise federal fuel taxes by 15 cents a gallon, here’s a look at the current state-level taxes on gasoline, courtesy of the Tax Foundation:
