On March 25, the Senate Budget Committee held a hearing on Social Security solvency in light of projections that the trust funds that pay the program’s benefits will run dry within 10 years. The sooner corrective action is taken, the less painful those solutions will be, said witnesses and committee members alike.
The hearing featured witnesses from the Senate, the Social Security Administration, the Congressional Budget Office, and the Congressional Research Service. All the witnesses noted that Social Security faces trust fund depletion within six to 10 years, and said that unless Congress acts, the result will be 20 to 25 percent benefit cuts for all Social Security recipients.
It was pointed out that the primary cause of the looming shortfall is the fact that currently there are fewer workers per retiree due to lower birth rates and increased longevity. Other contributing factors were wage growth among higher income workers (because of the program’s income cap, higher-income workers pay a smaller share of payroll taxes that finance the trust funds) and “economic underperformance” since 1983.
There are a variety of potential solutions, witnesses testified, and no one single approach will make up the shortfall. Thus, there will need to be a mix of revenue increases (increasing payroll taxes or raising or eliminating the income cap), cost controls, and program changes (adjusting the benefit formula or raising the retirement age).
Also discussed at the hearing was a proposal by Sen. Bill Cassidy (R-LA), who was a witness at the hearing. The Cassidy proposal would create a diversified investment fund separate from the current Social Security trust funds. The new fund would be funded, said Sen. Cassidy, with $1.5 trillion in borrowed money and invested under rules similar to those applicable to 401(k) plans. Also discussed was a proposal by Sen. Sheldon Whitehouse (D-RI), also a witness, that would eliminate the wage cap for income in excess of $400,000. The Whitehouse proposal would also impose payroll tax liability on investment income and change the rules (close loopholes) for pass-through businesses.
Prospects: There is little chance that Congress will act on Social Security reform this far in advance of a funding shortfall. This is despite the fact that almost all lawmakers would agree that less new revenue would be needed, or smaller benefit cuts would be required, if Congress implemented solutions sooner rather than later. Moreover, in a further political complication, President Trump recently suggested in a much-publicized speech that the Federal Government should not be involved in providing individual benefits like Social Security and Medicare. However, the issue is real and the closer to insolvency the Social Security trust funds get, the more intense the debate will be about how to solve the problem.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.