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Home›Financial Problems›Everyone talks about the problem of financing social security, but. . .

Everyone talks about the problem of financing social security, but. . .

By Todd McArthur
January 6, 2022
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The phrase “everyone talks about the weather but nobody does anything about it” is widely attributed to Mark Twain, although he never claimed to be the cause. It’s not in his writings, and versions of it were in general circulation years before the first recorded mention of him saying something like that.

Regardless: the thought is good and has been applied to many other situations to express the futility of recognizing a problem but not being able to fix it. This has been the case even with Social Security, which has a well-recognized funding problem that has not been resolved for decades.

The difference is that solving this problem is not a matter of ability, but of will. And the consequences go far beyond being inconvenienced by heat or cold or rain or the absence of it.

The last time Social Security faced a similar problem, in the early 1980s, a bipartisan commission laid the groundwork for a law that, among other things, brought more money to the program by increasing payroll taxes. and requiring newly hired federal workers to contribute to the program. thanks to a new creation called the Federal Employee Retirement System. He also made benefits partially taxable above certain income levels, redirecting that money into the program and gradually raising the age for receiving full benefits.

Even then, it was recognized that the fix was not permanent. At the time, the baby boom boom was barely entering its peak earning years, with more money paid in than it was taken out and building up a surplus in the trust fund over three decades. But inevitably, workers become retirees, which started a decade ago for this generation.

Over the past twelve years, Social Security has paid more than it has collected in payroll taxes, and the surplus will be used up in about the same number of years in the future. At this point, the program will only absorb about 75% of what it needs to cover planned expenses.

This is not a theoretical exercise for what already represents some 65 million beneficiaries, many of whom depend on it as a major source, if not the only one, of their retirement income. Neither is it something that can be simply concealed. Takes note of a recent report from the Congressional Research Service:

“Under the law in force, Social Security does not have the power to borrow from the general treasury fund. Therefore, the program cannot tap into general revenue to make up the difference between incoming revenue and benefit payments when the program no longer has asset reserves to draw on.

“The law on social security does not specify what would happen to the payment of benefits provided for by the law in force in the event of exhaustion of the social security trust fund. Two possible scenarios are (1) payment of full monthly benefits on a deferred basis or (2) payment of partial (reduced) monthly benefits on time. “

The solution is quite simple: increase income, slow spending growth, or both, preferably in combination to ease the pain of any change. There are several ways to approach each. To name a few, the age for receiving full benefits could be further increased; payroll tax could be increased or applied to more income; and adjustments for inflation may be limited.

Each year that date draws closer and the options become a little more painful as neither party wants to take responsibility for action, however obvious the need may be. The idea of ​​a bipartisan committee providing the political cover to actually accomplish something important seems rather odd today, much like a story about a bet that two frogs can jump on further.

But there is a stir in a Social Security reform bill that has drawn some bipartisan support in the House. The measure received a favorable hearing in December, a possible prelude to an attempt to move the bill forward this year either as a stand-alone measure or as an attachment to another bill.

The measure would bring in more money by reinstating the 6.2% payroll tax, which for 2022 would amount to $ 147,000 in earnings, for earnings over $ 400,000. The promoters anticipate that subsequent legislation would be enacted so that income between the two levels is also subject to this tax.

Other features of the bill, however, would increase spending. He would use a more generous formula to determine benefits; base inflation adjustments on an index suited to the spending habits of retirees, which also results in an expected increase; set a new minimum benefit for people with low career incomes; end the waiting period before receiving disability benefits; and extend benefits for dependent children until the age of 26.

And of particular interest to current or future retirees of the civil service pension system, it would eliminate two reductions in social security benefits also adopted as part of the latest reform – the “exceptional elimination provision” and the “government pension compensation” – which reduce Social Security benefits to people receiving annuities from a retirement program that does not include Social Security, such as the CSRS.

It remains to be seen whether all of this could be done and yet put Social Security on a more solid financial footing. Subjecting income over $ 400,000 to payroll tax would be just the start. But at least that would be walking the talk.

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