All is quiet in Washington this week as Republicans descend on Cleveland for their national convention and Democrats prepare to invade Philadelphia next week to anoint their presumptive nominee. The lull gave me time to review the numerous Social Security reform bills that have been introduced during the 114th Congress. None of the bills have advanced beyond the committee stage over the past two years.
But depending on the outcome of the November election, some of the measures could serve as inspiration for the next president if he or she decides to tackle Social Security reform. In general, Democrats oppose benefit cuts and Republicans object to tax hikes, but both sides are going to have to compromise to find a workable solution before it is too late.
The most recent Social Security and Medicare trustees report issued in June reiterated earlier forecasts that the program's trust fund reserves would run dry in 2034 unless Congress takes steps to before then. Despite that dire prognosis, several of the bills introduced over the past two years would expand Social Security benefits and pay for them by raising taxes on the wealthy.
Most notably, the Social Security Expansion Act (S. 731), introduced by former Democratic presidential candidate Bernie Sanders in March 2015, would increase benefits for all eligible beneficiaries by about $65 per month; switch the official inflation measure from the more general CPI-W to the CPI-E, which proponents say more closely reflects the actual expenses of the elderly; and immediately subject earnings above $250,000 to the payroll tax.
Currently, employers and employees each pay 6.2% in FICA taxes on the first $118,500 of earnings. The taxable wage cap is indexed to inflation. An additional 1.45% payroll tax is imposed on employers and employees on all earnings, even those above the wage cap, to finance Medicare. Self-employed individuals pay the combined tax rate of 15.3%.
The SAFE Social Security Act (S. 1940) would eliminate the cap on taxable income altogether, which sponsor Sen. Brian Schatz, D-Hawaii, says will “ensure millionaires and billionaires pay the same rate as the rest of Americans by gradually eliminating the Social Security tax cap.”
Sens. Sherrod Brown, D-Ohio, and Susan Collins, R-Maine, reintroduced a bill last year that is perennial favorite among public sector employees. The Social Security Fairness Act (S. 1651) would repeal the Windfall Elimination Provision and Government Pension Offset rules that reduce the Social Security benefits of workers, spouses and widows or widowers who receive pensions from a federal, state or local government for employment not covered by Social Security.
Presumptive Democratic presidential nominee Hilary Clinton is on the record supporting Social Security credits for caregivers who must leave the workforce to care for children or chronically dependent family members, in line with the Caregiver Credit Act (H.R. 3377) introduced by Rep. Nita Lowey, D-N.Y. Ms. Clinton also supports higher survivor benefits for widows and widowers.
Republican presidential nominee Donald Trump believes the key to preserving Social Security “is to have an economy that is robust and growing,” according to an AARP Bulletin article on the candidates' policy positions. “As our demography changes, a prudent administration would begin to examine what changes might be necessary for future generations,” according to the official response from Mr. Trump's campaign. “Our goal is to keep the promises made to Americans though our Social Security program.”
But Mr. Trump's choice of his running mate, Indiana Gov. Mike Pence, prompted harsh criticism from the National Committee to Preserve Social Security and Medicare. “During his decade-plus tenure in the U.S. Congress, Mike Pence consistently voted in favor of legislative efforts to cut benefits in Social Security, Medicare and Medicaid,” said Max Richtman, NCPSSM president.
It took an outgoing congressman, who has already announced he will retire at the end of the year, to introduce a bill designed to tackle Social Security's long-term financial problems. "The problem gets worse the longer we wait,” Rep. Reid Ribble, R-Wisc., said last week as he and a bipartisan group of co-sponsors introduced the Save Our Social Security (S.O.S.) Act. The bill calls for increasing the taxable wage base and consequently future benefits; adjusting the benefit formula for high earners; adopting a more conservative inflation measure; and gradually increasing the full retirement age to 69—positions largely opposed by the NCPSSM.
“Fixing Social Security requires making real choices,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan organization dedicated to curbing the federal debt. “The alternative of doing nothing is a deep benefit cut for all beneficiaries, and that is a retirement crisis we cannot afford.” Without action, retirement benefits would have to be cut by 21% beginning in 2034, just as today's 49-year-olds reach their full retirement age of 67.
This
bill may be a good starting point for those critical debates. The clock is ticking.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews
and a certified financial planner.
