Possible Approaches To Ensuring Social Security Continues To Provide Effective Social Insurance

 

In the 1990s, Americans took a hard look at Social Security and its future needs. As a result, adjustments were made. It is only wise for us to take a hard look again at what other adjustments can be made now long before 2041.

Suggested adjustments fall in one of three categories: benefit reduction, revenue increases and structural changes. In each case, there are pros and cons.

One particularly good idea that doesn’t fit in one of the three categories is to roll back the tax cuts recently provided the wealthiest in our country, and use the trillions of dollars to strengthen the Social Security program.

Benefit Reductions

1. Increase the retirement age at which one can receive full benefits.

   Pro: Life expectancy has risen since Social Security was enacted. It makes sense to raise the eligibility age to keep pace with the rising life expectancy.

   Con: For people with physically demanding jobs, those who are partially disabled and unable to receive disability benefits, those who cannot find work because of age discrimination, and those with lower life expectancy, this approach poses significant harm.

2. Reduce cost of living adjustments

   Pro: Can address some of the problem.

   Con: No matter how you try to sell it, it is a reduction in benefits.

3. Reduce benefits across the board

   Pro: Everyone would share the responsibility for the program’s future.

   Con: Those who depend on Social Security the most (elderly, low wage earners, women), the impact will be greater.

4. Reduce benefits for high-income beneficiaries

   Pro: Those who depend on Social Security the least are only ones affected.

   Con: Punishes those who have successfully saved and moves the program from a nearly universal one based on financing by contributions to one based one need.

Increase Revenue

1. Increase Payroll Tax Rates

   Pro: Increasing the payroll tax rate could address the shortfall.

   Con: Employers certainly don’t want to see their taxes rising, but also those struggling workers can ill-afford to pay more.

2. Increase the Amount of Earnings Subject to Payroll Tax

   Pro: Only affects higher wage earners who currently stop paying in to the program once their annual wages reach $90,000. Raising the “cap” to $150,000 or $200,000 would have a tremendous impact on the program’s solvency.

   Con: Some see payroll taxes as already too high.

3. Cover all new workers hired by state and local governments. A number of state and local governments were allowed to choose years ago to remain outside the Social Security system.

   Pro: Would provide additional source of revenue. These workers would contribute payroll taxes immediately but most would not collect benefits for decades.

   Con: These newly hired workers may prefer to be enrolled in the retirement programs operated by the state or local agencies. Also, state and local governments would spend money administering the transition.

Structural Changes

1. Allow a portion of the Social Security surplus to be invested in the stock market, with an independent board selecting portfolio managers to operate indexed funds.

   Pro: Social Security could receive a higher rate of return and would bear the risks involved, not the individual.

   Con: The trust funds would have to absorb the risks of market downturns. Investment decisions could be highly politicized. In addition, Social Security could become involved in the operations of businesses since the government would become a major stockholder.

2. Allow individuals to divert some of their tax withholding to establish personal investment accounts.

   Pro: This could produce a higher rate of return for the individual and allows more control over their retirement funds.

   Con: We already have numerous tax incentives for individuals to invest in the stock market (401k’s, IRA’s). There could be tremendous losses, adminstrative costs would be huge and this does not address the needs of disability and survivor benefits. And the number one con: This approach does absolutely nothing to address the problems the Social Security program faces.