It’s An Idea

      From the Committee for a Responsible Federal Budget:

The Social Security retirement and Medicare Hospital Insurance (HI) trust funds are approaching insolvency, with both trust funds expected to be depleted in just seven years. Without action, retirees face an automatic 24 percent benefit cut in 2032, while Medicare hospital payments would be cut by 12 percent. Restoring solvency to these trust funds will require slowing benefit growth, lowering health care costs, increasing revenue, or some combination.

The Social Security and Medicare trust funds are financed primarily by a 15.3 percent payroll tax on wages, split evenly between worker and employer, with the 12.4 percent Social Security tax applied only to the first $176,100 of annual wages in 2025. Proposals to boost revenue often involve increasing the tax rate or the tax cap.

This Trust Fund Solutions Initiative white paper suggests a new alternative – replacing the employer side of the payroll tax with a flat Employer Compensation Tax (ECT) on all employer compensation costs.1 While workers would continue to pay payroll taxes, employers would instead pay an ECT on all wages (with no tax cap) and all fringe benefits such as employer-sponsored insurance and stock options.

Karen E. Smith at the Urban Institute modeled this proposal using the DYNASIM model.2 Using that analysis, replacing the employer payroll tax with an ECT would:

• Raise $2.5 trillion over a decade and 0.7 percent of GDP over 75 years.
• Close two-thirds of Social Security’s shortfall and half of Medicare’s gap.3
• Alternatively, close one-third of Social Security’s shortfall, one-eighth of Medicare’s shortfall, and fund a 1 percentage point cut in payroll taxes – improving solvency while reducing taxes for the bottom 60 percent of workers.
• Extend Social Security solvency by two decades to 2055 and modestly extend Medicare solvency – with further extension if combined with other reforms.
• Increase progressivity, generating revenue mainly from the highest earners.
• Support stronger economic growth than alternative revenue options.
• Improve horizontal equity, efficiency, and simplicity; slow health care cost growth; and avoid viability and revenue stability concerns of alternatives. …

Still Standing After All These Years

     From Tom Margenau, a retired Social Security employee with a syndicated column:

… I remember way back in 1973 when I was sent out as a relatively new Social Security Administration spokesperson to deliver my first speech on the topic. And hardly before I had a chance to introduce myself, some guy in the audience who appeared to be around 40 years old jumped up and said, “I don’t know why we should listen to anything you have to say. We all know Social Security will go belly up long before we ever have a chance to collect a dime out of the system!” …

Well, of course, if that guy is still alive, he’d be pushing 90 now and would have been collecting many millions of dimes in the form of Social Security checks, month in and month out, for about 30 years now.  …

That story always reminds me of something I learned from one of my mentors when I started working for the Social Security Administration. He was a fairly high-placed official within the agency who started working for the SSA shortly after it was created in 1936. And he told me that way back then, many members of the public were telling him that the Social Security program was doomed to failure. …

A Free Lunch That Only Costs A Few Trillion Dollars But It Will All Be Paid Back 75 Years From Now

      From an op ed piece in the Washington Post by Senators Bill Cassidy (R-LA) and Tim Kaine (D-VV):

… We propose creating an additional investment fund — in parallel to the trust fund, not replacing it — that would be invested in stocks, bonds and other investments that generate a higher rate of return, helping keep the program from running dry.


We estimate that it would take a $1.5 trillion up-front investment into the fund to get it going, and we propose giving the fund 75 years to grow. The Treasury would temporarily shoulder the burden of providing benefits to Social Security beneficiaries — but when the new fund’s 75 years are up, it would pay the Treasury back and supplement payroll taxes to help fill the future gap.

The result? The consistent delivery of Social Security benefits for generations of Americans, and a reduction to the United States’ long-term indebtedness by up to 20 percent. …

Delusional?

      From The Hill:

The new head of the agency responsible for administering Social Security and Medicare said Sunday he plans to make sure the agency survives well into the 2100s.

In a Sunday interview, Social Security Administration Commissioner Frank Bisignano said the Trump administration and lawmakers plan to make major changes focused on cutting waste and fraud with the goal of keeping the trust funds behind Social Security and Medicare solvent. …

     There are at least three ways of looking at this. Maybe he really thinks he can “save” Social Security by cutting “waste, fraud and abuse.” That would  simply be delusional. There are no significant savings available. Any minor savings would require upfront funding which is out of the question and would be completely inadequate anyway. Still, I think the theory that he doesn’t know what he’s talking about is most likely.  A second possibility is that he plans to cut benefits in some way inconsistent with the law. That would have to be a huge illegal cut and extremely controversial, probably suicidally so. I’m not even entertaining the possibility that he thinks he’ll steer cuts in Social Security through Congress. The third possibility is that he’s simply spouting bull. Maybe, but Bisignano comes from the reality based world so I doubt that.

Americans Support Maintaining Social Security Even If It Means Increased Taxes And Oppose Cutting Benefits

     From a report on opinion polling performed by Greenwald Research for the National Academy of Social Insurance (NASI):

... This survey’s primary finding is that Americans overwhelmingly want to see Social Security’s financing gap closed by bringing in more revenues—and are willing to contribute more to strengthen the program’s finances. When asked which statement comes closest to their view, 85 percent of respondents selected either that we should ensure benefits are not reduced, or that we should increase benefits, even if it means raising taxes on some or all Americans. Only 15 percent of respondents selected the response that we shouldn’t raise taxes on any American even if it means benefits are reduced. This broad preference for raising revenues versus reducing benefits cuts across political, income, education, and generational lines; among Republicans, more than 3 in 4 prefer increasing revenues to benefit reductions, with more than 9 in 10 Democrats and more than 8 in 10 Independents sharing this preference.

Of all the policies tested, respondents most strongly preferred lifting the payroll tax cap. Respondents also strongly supported increasing the payroll tax rate from 6.2 percent to 7.2 percent for both employers and employees, to ensure solvency and maintain current benefits. Changes that would result in lower benefits, such as raising the retirement age or adopting cost-of-living adjustments, had little support. ...

One Man Thinks That The Third Rail No Longer Exists

     John Tammy has written a piece for Forbes arguing that Social Security is no longer the Third Rail of American politics because people will be working until they're 70 and then relying upon their private savings. Social Security hardly matter to anyone not already on benefits or about to be on them. He just wants taxes lowered for money coming out of retirement accounts.

    Talk about being elite and out of touch! Most people don't wait until full retirement age now to start their Social Security benefits. There's no sign that's changing. Blue collar workers can rarely go on working until they're 70. Their health won't permit it. I think that Mr. Tammy hasn't yet experienced any of the ill effects of the aging process. It's coming for you too, buddy, whether you believe it or not. The odds are high that even highly motivated white collar workers don't make it until 70. Private savings? Does Mr. Tammy know anyone with an annual income below $100,000? Apart from their homes, if they're lucky enough to have them, most Americans near retirement age have only modest savings at best.  

    Right wing "thinkers" keep telling us that the key to all retirement problems in the U.S. is lowering the tax bills paid by wealthy Americans. It's what they're paid to write.

Immigrants Help Social Security Trust Funds

     From The Hill writing about Tuesday's hearing before the House Social Security Subcommittee on future funding of Social Security benefits:

“The immigration surge, we project from 2021 to 2026, will result in about $1 trillion in additional revenue” over a ten year period, Dr. Phillip Swagel, director of the Congressional Budget Office (CBO) told lawmakers during a Tuesday hearing. ...

Republicans — including former president and presidential candidate Donald Trump — have increasingly pointed to immigration as a drain on social safety nets for the elderly in recent months, including Social Security and Medicare. 

Top budgetary experts bucked those claims during Tuesday’s panel as they argued immigrants could have a positive impact on Social Security.  ...

Rep. Ron Estes (R-Kan.) pressed [Stephen] Goss [Social Security's Chief Actuary] on whether the SSA accounted for the “impact of illegal immigrants” in their yearly report.

“Absolutely, we always have,” Goss responded. “The bottom line really is that immigration of any form is actually a positive in the realm we are now where the birth rates in the country are as low as they are.” ...

    Isn't it obvious that illegal immigrants help the Social Security trust funds? They contribute but can't get anything in return. Of course, this won't be obvious if you believe that illegal immigrants are just "given" Social Security benefits as soon as they arrive but, of course, that's a myth believed only by the credulous.

The Only Real Fix For Social Security Is More Babies?

What about more people like these taking the citizenship oath?

     Megan McArdle writes for the Washington Post that "The only real fix to Social Security’s [long term funding] problems? More babies."

    More babies would certainly help but only in the long run. It may be literally impossible for the government to get women to have more babies, anyway. Fertility is a deep cultural thing which may be beyond any incentives the government can provide. Even if you can figure out a way to increase fertility it would be at least a couple of decades before it would help.

    In any case, more babies isn't the only solution. The other solution is increased immigration. That gives an immediate increase in the working age population. Also, for literally centuries, the U.S. economy has been invigorated by the contributions of immigrants. They're good for the U.S. The problem with increased immigration is that those who most want to immigrate to the U.S. tend to be black or brown which enrages a significant portion of the existing population.

The Right Will Spin The Trustees Report As Showing That The Doomsday That They Have Always Predicted For Social Security Is Right Around The Corner But Actually The Report Is Good News This Year

     From a press release:

The Social Security Board of Trustees today released its annual report on the financial status of the health of the Social Security Trust Funds. The combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to have enough dedicated revenue to pay all scheduled benefits and associated administrative costs until 2035, one year later than projected last year, with 83 percent of benefits payable at that time.

In the 2024 Annual Report to Congress, the Trustees announced:

• The asset reserves of the combined OASI and DI Trust Funds declined by $41 billion in 2023 to a total of $2.788 trillion.
• The total annual cost of the program is projected to exceed total annual income in 2024 and remain higher throughout the 75-year projection period. Total cost began to be higher than total income in 2021. Social Security’s cost has exceeded its non-interest income since 2010.
• The year when the combined trust fund reserves are projected to become depleted, if Congress does not act before then, is 2035. At that time, there would be sufficient income coming in to pay 83 percent of scheduled benefits. ...

It's An Idea

    From The Case For Using Subsidies For Retirement Plans To Fix Social Security by Andrew Biggs and Alicia Munnell:

The U.S. Treasury estimates that the tax preference for employer-sponsored retirement plans and IRAs reduced federal income taxes by about $185-$189 billion in 2020, equal to about 0.9 percent of gross domestic product.1 However, the best evidence suggests that the federal tax preferences do little to increase retirement saving.  ...

The [report] concludes that it makes little sense to throw more and more taxpayer money at employer plans and IRAs. In fact, the case is strong for eliminating the current tax expenditures on retirement plans, and using the increase in tax revenues to address Social Security’s long-term financing shortfall. ...

    This doesn't appeal to me. It's very unlikely to pass. There aren't specific tax revenues involved, just a reduction in tax preferences. I'd be more in favor of dedicating revenues from the estate tax, excise taxes and tariffs to Social Security but I doubt that would be enough to matter much. It's becoming more and more obvious to me that the only solution to the long term funding shortfall is an infusion of general tax revenues. The things that people discuss, raising full retirement age and lifting the cap on wages covered by the FICA tax, even together, aren't nearly enough to solve the long term funding problem.

Rising Income Inequality And Social Security

       From Marketwatch:

When Alan Greenspan and his committee supposedly “fixed” Social Security’s funding crisis in the early 1980s, the program was supposed to remain solvent well into the 2050s.

Instead, the trust fund is scheduled to run out of money in 2034 — decades ahead of schedule. What went wrong?

Stephen Goss, who has been the Social Security Administration’s chief actuary for more than 20 years, posed this question recently during a retirement conference hosted by the Harkin Institute. And his answer may surprise some people.

Sure, birthrates have collapsed from the heady days of the baby boom, he said, and that trend hasn’t helped. But it’s nothing new: The big fall started in 1965, nearly 20 years before the Greenspan Commission.

And yes, people are living longer than they used to. But that isn’t a surprise, he added —actually, the decline in mortality is pretty much in line with expectations. The forecasts have proven “remarkably accurate,” he said.

So what changed? In a word: inequality.

Goss argued that rising income inequality — with fast growth at the top and slow growth everywhere else — is the mystery ingredient that has thrown Social Security’s finances into turmoil earlier than planned. And the big change took place in the 17 years after the Greenspan Commission made its projection, from 1983 to 2000, he said.

During that time, incomes for the best-paid 6% of earners rose by 62% in real, inflation-adjusted terms, he said. For the other 94%, incomes rose by just 17%.

The net result was that the lion’s share of U.S. income growth was above the Social Security cap, and wasn’t subject to the program’s payroll taxes. The percentage of incomes subject to the program’s tax collapsed from around 90% in the early 1980s to barely 82% by the turn of the millennium. …

Martin O'Malley's Positions On Social Security

     Back in 2015 Martin O'Malley was running for President. He didn't get very far but he did take these positions on Social Security:

• Increase Social Security benefits. O'Malley proposed increasing minimum Social Security benefits to 125% above the poverty line and raising benefits for low- and minimum-wage workers, who the governor claims currently don't receive enough benefits and often don't have any retirement savings at all.
• Raise the cap on the payroll tax for workers making more than $250,000 a year. O'Malley claimed that raising the payroll tax — along with raising the minimum wage and enacting immigration reform — will pay for many of his proposed reforms.  ...
  

    Please remember that as Commissioner, O'Malley would have no ability to adopt such plans. Congress has to do that. As Commissioner, he probably couldn't even lobby for such plans. That seems to be an unwritten rule these days. It's not always been that way, though. I've read the autobiography of Arthur Altmeyer, the first Commissioner of Social Security and an extremely important figure in the history of Social Security in this country. As Commissioner, Altmeyer was engaged in lobbying Congress almost full time. Other people were actually running the agency. By the way, I do not recommend reading the Altmeyer autobiography. It's really dry and tedious.

     Also by the way, the White House has lined up quite a number of endorsements for O’Malley’s nomination but none from Republicans.

Congressional Hearing Today

     A press release:

There will be a Hearing of the Committee on the Budget 

On: Wednesday, July 12, 2023, 10:00 AM 

In: Room SD-608. 

To consider: "Protecting Social Security for All: Making the Wealthy Pay Their Fair Share"

Witnesses

---

1. The Honorable Phillip Swagel, Ph.D.
   Director
   Congressional Budget Office
    
2. Mr. Stephen C. Goss
   Chief Actuary
   Social Security Administration
    
3. Ms. Kathleen Romig
   Director of Social Security and Disability Policy
   Center on Budget and Policy Priorities
    
4. Ms. Amy Hanauer
   Executive Director
   Institute on Taxation and Economic Policy
    
5. Dr. Andrew G. Biggs, Ph.D.
   Senior Fellow
   American Enterprise Institute

A New Argument For Using General Revenues To Augment The Trust Funds

     From the Center for Retirement Research at Boston College:

... The fact that in 2033 Social Security would be able to pay only 77 percent of scheduled benefits should focus our collective minds.  ... [I]f the cost of currently scheduled benefits simply exceeds what today’s workers are paying into the system, the traditional proposals to reduce benefits or raise payroll taxes would be most relevant.  

However, the cause of the shortfall lies elsewhere.  Specifically, the program’s “pay-as-you-go” financing – with the exception of the recent build-up and spend-down of the current modest trust fund – makes the program look expensive.  This financing approach is the result of a policy decision in the late 1930s to pay benefits far in excess of contributions for the early cohorts of workers.  The decision essentially gave away the trust fund that would have accumulated and, importantly, gave away the interest on those contributions.  The “Missing Trust Fund” provides a strong justification for an infusion of general revenues into the program.  ...

This Should Come As No Surprise

     From the Associated Press:

Most U.S. adults are opposed to proposals that would cut into Medicare or Social Security benefits, and a majority support raising taxes on the nation’s highest earners to keep Medicare running as is.

The new findings, revealed in a March poll by The Associated Press-NORC Center for Public Affairs Research, come as both safety net programs are poised to run out of enough cash to pay out full benefits within the next decade.

Few Americans would be OK with some ways politicians have suggested to shore up the programs: 79% say they oppose reducing the size of Social Security benefits and 67% are against raising monthly premiums for Medicare. ...

Instead, a majority — 58% — support the idea of increasing taxes on households making over $400,000 yearly to pay for Medicare, a plan proposed by President Joe Biden last month. ...

Three-quarters of Americans say they oppose raising the eligibility age for Social Security benefits from 67 to 70, and 7 in 10 oppose raising the eligibility age for Medicare benefits from 65 to 67. ...

While most support increasing taxes on households earning more than $400,000 a year to pay for Medicare, the poll shows a political divide on doing so: 75% of Democrats support the tax but Republicans are closely divided, with 42% in favor, 37% opposed and 20% supporting neither. ...

    So why do Republicans in Congress keep talking about raising full retirement age and keep refusing to consider any changes to FICA? That's what their big money donors want; their rank and file members not so much.

A "Bipartisan" Plan?

     From Semafor:

A bipartisan group led by Sens. Angus King, I-Maine, and Bill Cassidy, R-La. is considering gradually raising the retirement age to about 70 as part of their legislation to overhaul Social Security, Semafor has learned from two people briefed on their efforts.

Other options on the table include changing the existing formula that calculates monthly benefits from one based on a worker’s average earnings over 35 years to a different formula that’s based instead on the number of years spent working and paying into Social Security.

The plan also includes a proposed sovereign wealth fund (as previously reported by Semafor) that could be seeded with $1.5 trillion or more in borrowed money to jumpstart stock investments, the people said. If it fails to generate an 8% return, both the maximum taxable income and the payroll tax rate would be increased to ensure Social Security stays on track to be solvent another 75 years. ...

Sen. Mike Rounds, R-S.D., a member of the group, previously said that raising the payroll tax cap was under discussion. Only the first $160,000 of employees' earnings are currently subject to payroll taxes, which help fund Social Security. If Congress fails to step in, retirement benefits will be cut roughly 20% for seniors starting in 2032, per the Congressional Budget Office.

    Are there any real Democrats on this "bipartisan" group? I know that Angus King caucuses with Democrats but he's not a Democrat. 

    None of this has any hope of passage in this Congress.

 

Don't Panic!

     Paul Krugman has an excellent piece in the New York Times about why we should not panic about Social Security. You really should read the whole thing. Here are a few excerpts:

...  The thing about Social Security is that from the beginning it was designed to encourage misconceptions. It looks, on casual inspection, like a giant version of a private pension plan. ...

I’m pretty sure that it was set up to look like an ordinary pension fund because that made it politically easier to sell. But in reality, Social Security has never been run like a private pension plan. ...

For one thing, for the first half-century of the program’s existence it had almost no assets; in 1985, the trust fund was only large enough to pay around two months’ worth of benefits. So it has always operated mainly on a pay-as-you-go basis, with today’s payroll taxes paying for today’s retiree benefits, not tomorrow’s.

I often get mail from people claiming that this makes Social Security a Ponzi scheme. But it isn’t. It’s just a government program supported by a dedicated tax ...

I get a lot of mail from people saying that we should simply eliminate the upper limit on the payroll tax. That would certainly raise a lot of money. But bear in mind that there’s no fundamental reason Social Security has to be financed with payroll taxes — we only do it that way because back in 1935, F.D.R.’s advisers thought it would be a good idea to dress Social Security up to look like a private pension fund. ...

The other idea I hear a lot is that we should raise the retirement age — which has already been increased, from 65 to 67. After all, people are living longer, so they can work longer, right?

Well, some people are living longer. But one key point in thinking about Social Security is that the number of years you can expect to spend collecting benefits has become increasingly linked to the income you earned earlier in your life. ...

[C]alling for an increase in the retirement age is, in effect, saying that janitors can’t be allowed to retire because lawyers are living longer. Not a very nice position to take. ...

 

If FICA Covered All Wages Over $250,000

 

From the National Committee to Preserve Social Security and Medicare

Does Political Messaging Matter?

    From the Washington Post:

 In that Jan. 25 meeting [with the President], [Senator Bernie] Sanders pushed the president to fully fund Social Security for more than seven decades by expanding payroll taxes on affluent Americans, rather than just on workers’ first $160,000 in earnings, as is the case under current law. Sanders also asked the president to back his proposal — highly unlikely to pass Congress — to not only defend existing benefits but also increase them. He wants to provide another $2,400 per year for every Social Security beneficiary.

This previously unreported discussion between Biden and his onetime presidential primary rival reflects a broader behind-the-scenes effort inside the White House to decide how, or if, the party’s message on entitlements should go beyond criticizing the GOP. ...

Biden aides have in recent weeks discussed proposing raising payroll taxes on the rich to fund Social Security, but it is unclear if the president will ultimately endorse that measure when he releases his budget in March, according to three people familiar with international deliberations. ...

“There’s a faction inside the White House that feels some need to offer a plan, though I personally feel that’s misplaced,” one senior Democratic pollster said, speaking on the condition of anonymity to discuss private conversations with senior administration officials. “Stick to our basic message: Hands off our seniors. That’s working.” ...

    Note that these are discussions about political messaging. No tax increases are happening with Republicans in control of the House of Representatives. The Republican message that "We'll never agree to tax increases so Democrats, not Republicans, must propose benefit cuts" won't ever lead to a solution.

    It's apparent to me how Social Security's long-term financing issues will be resolved. Eventually, Democrats will have a great election cycle and have enough strength in Congress to pass a bill. Until then, it's just posturing but today's political messaging can become tomorrow's enacted fix for Social Security so the posturing matters. If Democrats don't have such an election cycle in time, it's going to be a train wreck, mainly for the GOP which will be caught between its ideology and the great majority of the country which loves Social Security and doesn't want to see it cut.

Sounds Good To Me

     From Marketwatch:

Social Security should be able to pay out full benefits until 2035 without any intervention, but a proposal by Sen. Bernie Sanders would extend the life of the program for 75 years, chief actuary Stephen Goss said.  ...     

The Social Security Expansion Act aims not only to pay out full benefits but, as the name implies, to bolster the program. Under the proposal, Social Security would provide an additional $2,400 in benefits to each beneficiary every year. The program would also be linked to the experimental price index for the elderly, or CPI-E, instead of the consumer-price index for urban wage earners and clerical workers, or CPI-W. The switch would change the cost-of-living adjustment to align more closely with older Americans’ spending. 

 The proposal calls for two new taxes: a 12.4% tax on investment income for individuals earning $250,000 or more per year, and a 16.2% net-investment-income tax for specific business owners, including active S-corporation holders and active limited partners. The proceeds of the latter tax would be divided between the retirement and disability trust funds and the general Treasury fund. ...

     This isn't happening, at least not now. There wouldn't be a majority in the Senate for this and the House is under the nominal control of the GOP. I mention it because it's an honest attempt to deal with the problem, unlike ridiculous Republican claims that they want to "reform" Social Security, without raising taxes or cutting benefits.

    What I love seeing in response to proposals like this is the cynical argument that it does no good to raise taxes on the wealthy. They'll just use tax tricks to avoid paying the tax. Sure. So why do these wealthy people employ shills to spread the cynical argument in forums like this? Who else but shills would spread that sort of garbage? Of course the wealthy would pay more under Senator Sanders' proposal. That's why they fight it with such vigor.