The Senate Finance Committee said it will look at all options to shore up the Social Security program’s finances, including raising the payroll cap, adjusting benefits, establishing a commission to recommend changes for Congress to consider on a fast-track legislative basis, and establishing what amounts to private sector investment accounts for Social Security beneficiary contributions. The committee held a hearing on August 5 to explore these and other ideas.
Among the ideas discussed at the hearing were:
Impose the Socia Security payroll tax on incomes above $250,000/year.
Create a separate investment fund (modeled on the Railroad Retirement Program) that allows Social Security beneficiaries to put a portion of their payroll tax contributions into a private account to supplement the traditional Social Security trust fund.
Require the Social Security Advisory Board to develop a legislative proposal to be considered by the House Ways & Means and Senate Finance Committees, with the proposal automatically going to the full House and Senate for a vote if the committees do not act by a date certain (currently, November 9).
Changing how Social Security benefits are taxed—this idea, which proponents said could generate up to $2 trillion over 10 years and could close 10 to 20 percent of the funding shortfall—suggests a Roth-type approach to payroll taxes—i.e., taxing contributions rather than benefits.
An upper dollar limit on the inflation adjustments to benefits that high-income Social Security recipients could receive.
Social Security trustees project that the program’s trust fund will be depleted by 2032, creating a sense of urgency among lawmakers and the private sector to address the problem. Experts say that payouts to some 75 million beneficiaries have been greater than Social Security’s cash balances for almost 20 years, requiring the program to access reserves to meet its benefit payment obligations.
Testifying at the hearing were the Committee for a Responsible Federal Budget, the Mercatus Center at George Mason University, the National Academy of Social Insurance, and AARP. The committee’s chairman, Sen. Mike Crapo (R-ID) said of the committee’s effort, “It’s time both the Republicans and the Democrats got past the partisan politics and started evaluating options for how to deal with saving Social Security.”
Prospects: Long viewed as “the third rail” of American politics, Social Security program changes are especially tough for Congress, particularly now during these hyper partisan times. And although 2032 is very close in terms of decision-making on long-range financial changes, it is light years away in terms of political urgency. So, experts believe that although a discussion of how to restore Social Security to solvency will continue for quite some time, there is skepticism about how quickly Congress will act on what could become a significant political/financial crisis.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org