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.
Trump’s Cabinet Would Benefit from Tax Plan Too
“Eliminating the estate tax would save the Trump Cabinet over a billion dollars," Oliver Willis writes. "Like Mnuchin, Trump’s secretaries would make out like bandits. Commerce Secretary Wilbur Ross would get an extra $545 million. The family of Education Secretary Betsy DeVos would rake in $900 million. Linda McMahon, head of the Small Business Administration, and her husband, WWE founder Vince McMahon, would take in $250 million. Trump’s own net worth is in dispute, thanks to his failure to reveal his tax returns, but based on his estimated net worth of $3 billion, the estate tax scheme would net him $564 million.” (Shareblue Media, Bloomberg)
A Liberal Economist Shoots Down the GOP’s Fiscal Chicken Hawks
Republicans want a tax cut, but they don’t want to fully pay for it and may be willing to increase the deficit by $1.5 trillion over 10 years. This would continue a troubling cycle, economist Jared Bernstein writes, in which supposed fiscal conservatives “use the deficit argument to block spending, promote fiscal austerity, and small government, conveniently tossing deficit concerns aside when it comes to tax cuts.”
You’ll hear arguments about how increased economic growth will make up for the budgetary effects of the tax cuts, but don’t believe them. “Our fiscal history on this point is clear: Cutting taxes loses revenues, which, unless offset by higher taxes elsewhere or spending cuts, increases the budget deficit, which in turn raises the debt.” When this happens again, and the promised growth effects don’t materialize, the tax cutters will go back to pushing for spending cuts.
The country faces a number of serious challenges, including an aging population that by itself will require increased government spending, and we need a tax policy that does more than drive up the deficit. “The problem with structural deficits — ones that go up even in good times — is that they reveal that we’re unwilling to raise the necessary revenues to support the government we want and need. This enables those who whose goal is to shrink government to point to deficits and debt as their proof that we can’t afford it, whatever ‘it’ is, except when ‘it’ is tax cuts.” (New York Times)
Health Secretary Tom Price Under Fire for Use of Private Jets
Back in 2009, Tom Price spoke out against House Democrats who wanted to spend $550 million on private jets for lawmakers to use. A Republican representative from Georgia at the time, Price told CNBC that the purchase of the jets was “another example of fiscal irresponsibility run amok.” Now Secretary of Health and Human Services, Price seems to have changed his mind about the virtue of government officials using private jets at taxpayer expense. Just last week, Price used a chartered private jet to travel to three HHS events — including one at a resort in Maine — at an estimated cost of $60,000, Politico reports.
While previous HHS secretaries typically flew commercial, reports indicate that Price has been traveling by private jet for months. “Official travel by the secretary is done in complete accordance with Federal Travel Regulations,” an HHS spokesperson told Politico.
Critics on Twitter have been harsh:
More in-your-face kleptocracy from Tom Price.Take food stamps from poor, hungry kids- spend $25k from taxpayers to charter plane to Philly
— Norman Ornstein (@NormOrnstein) September 20, 2017
1️⃣ Attack Medicaid while trading health stocks.
— Harry Stein (@HarrySteinDC) September 20, 2017
2️⃣ Spend funds that could give someone 4 years of Medicaid coverage to fly a private jet. https://t.co/GO5cfJgWgO
First Mnuchin, now Tom Price. The @realDonaldTrump Cabinet has a big problem charging taxpayers for private flights. https://t.co/th1QbGdfT7
— Ben White (@morningmoneyben) September 20, 2017
Social Security Benefits Due for a Bigger Bump in 2018
In a few weeks the Social Security Administration will announce its cost-of-living adjustment, or COLA, for 2018. Inflation data for the month of August suggests that the adjustment could be the highest in five years, possibly over 2 percent, according to the Washington Examiner. Adjustments for the past five years have been relatively small: The cost of living adjustment for 2017 (announced last October) came in at a modest 0.3 percent, and the adjustment for 2016 was zero. Some retirees have complained in the past about small COLAs, but it’s worth remembering that higher adjustments are driven by higher inflation, which is bad news for people living on fixed incomes.
Americans Are Less Satisfied with Government Now Than a Year Ago
Gallup finds that just 28 percent of Americans are satisfied with the way the nation is being governed, down from 33 percent a year ago. And as we approach some potential fiscal battles, it's worth noting that the lowest satisfaction levels since Gallup started updating the measure annually in 2001 came in 2011 (19 percent) after a debt ceiling showdown that led to the U.S. credit rating being downgraded by S&P analysts and in 2013 (18 percent) during a federal government shutdown.
