Democrats’ Social Security 2100 expansion plan risks destroying Social Security as we know it

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In 2014, Representative John Larson premiered a bill called the Social Security Law 2100, which consisted of seven provisions intended to increase Social Security benefits and income, with income increases deemed sufficient to address projected deficits and finance benefit increases, and with confirmation of these by the Chief Social Security Actuary.

The bill would have increased the benefits of

  • Establish a special minimum benefit of 125% of individual poverty for people with 30 years of professional experience,
  • Increase the first PIA formula factor from 90% of the salary to 93%,
  • Use of the CPI-E index specific to older people for cost-of-living adjustments, and
  • Raise the benefit tax thresholds to $ 50,000 single / $ 100,000 married (this would have been a temporary change as it would not have been adjusted for inflation).

And he would have financed these changes and restored solvency by

  • Apply the tax rate on salaries to incomes above $ 400,000 (there would have been a trivial / symbolic accumulation rate of 2% on these salaries),
  • Increase the payroll tax by 1% for each employer and employee (gradually over 20 years), and
  • Invest up to 25% of the Trust Fund reserves in the stock market.

Bill, at the time, never went anywhere, although Larson has reintroduced it several times since, but I lift it to contrast with his most recent version of this legislation, which he calls “Social Security 2100: A Sacred Trust”, and which he presented in early November to 200 Democratic cosponsors, because his new version has changed considerably.

It no longer targets restored solvency.

He is no longer asking all Americans to pay more to fund the benefit enhancements they would receive on their own in retirement.

Importantly, he’s playing the same games with temporary benefits as in the Build Back Better bill, but with more serious consequences.

Specifically, the bill

  • Increase benefits by around 2%,
  • Adopt the CPI-E COLA adjustment,
  • Establish a minimum poverty rate of 125% for single people,
  • Increase benefits for surviving spouses in dual income households,
  • repeal the windfall elimination provision and government pension compensation,
  • Provide up to five years of caregiver credits,
  • and other improvements,

– corn these increases would only last for five years! And this very short period of benefit enhancement is not mentioned in the bill.fact sheet” Where Press release, and this is not mentioned in media reports, as at CNBC Where MoneyWatch (although, to be fair, the mainstream media doesn’t seem to have covered it at all).

In addition, the payroll tax hike is no longer on the table, only the wage increase above $ 400,000, and therefore the insolvency date is only delayed until 2038 (like calculated by the Chief Social Security Actuary), which is a mere five-year extension from the current expected insolvency date of 2033.

Alicia Munnell, Director of the Center for Retirement Research at Boston College, further calculates that, over the next 75 years, if indeed the new provisions remained for the five years provided for by the new legislation, the deficit over 75 years would be reduced from 3.5% of the taxable payroll to 1.7% of the total salary. However, if these provisions were made permanent after five years, the long-term Social Security deficit would remain virtually unchanged. And to let the provisions expire, she writes, would create “administrative chaos and in terms of public perception.”

She writes: “Social Security Administration staff and the agency’s IT capabilities are already exhausted; implementing a dozen new provisions would be a huge challenge. And consider explaining to angry participants why their cost of living adjustments suddenly drop when the CPI-E provision expires. Enabling and disabling provisions will confuse people enormously and undermine confidence in the program. “

Munnell is right. In fact, she minimizes the problem.

Consider that in many ways we have become accustomed to the kind of games politicians play with sunsets and temporary arrangements.

We can roll our eyes when Republicans temporarily cut taxes, with a 10-year sunset due to the nature of reconciliation bills, or when Democrats do the same with tax credits. But we (most of us, anyway) don’t organize our lives around the precise marginal tax rate we pay.

This is considerably more of a problem when, as in the case of the Build Back Better bill, programs such as universal preschool education or heavily subsidized or free child care are designed to end after a small number of years, in particular. because of the enormous cost of implementing these programs and the disruption if they end – not just the administrative effort, but the cost of building new preschool classrooms in public schools replacing religious and private programs, for example.

But it is even worse to introduce this type of temporary benefit into social security, which is a basic social insurance program. built on the fundamental premise of stability, so Americans can plan their retirement savings with a reliable forecast of future benefits. If the Democrats increase benefits for 5 years, they have set a precedent that will surely pave the way for frequent tinkering, including “temporary” increases in the retirement age or cuts in benefits, in a way that is no different from the tax system or just about any other sort of federal spending. Ultimately, Social Security would lose its special status and take its place among the multitude of programs that current beneficiaries / activists are struggling over, from student loans to grants for electric vehicles.

All of this means that it should have been unthinkable to propose these kinds of temporary changes to Social Security, and it’s actually quite concerning that House Democrats don’t see it that way.

As always, you are welcome to comment at JaneTheActuary.com!

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