By Brenton Smith
Worried about the fate of Social Security given that its reserves are forecast to be wiped out by 2035, necessitating a cut in benefits? Congress is on the move. More than 200 Democrats in the House of Representatives have sponsored the Social Security 2100 Act , which promises to keep full checks going to beneficiaries into the next century.
While that prospect sounds great, I simply can’t buy into the enthusiasm for this legislation emanating from all corners of politics. The gist of the proposal is the stability of Social Security should depend upon the assumption that our kids will pay the taxes that we won’t. It is an irresponsible idea, one that puts the entire system at risk.
If politicians are serious about the stability of this vital program, they need to stop wasting precious time on partisan politics, and start looking for a balanced approach that combines a mix of reductions in benefits and more revenue. For example, Social Security benefits could be indexed for changes in life expectancy. But at this point, the prospect of saving Social Security depends upon all-or-nothing policy measures. These proposals aren’t serious, and fail year after year.
Read Paul Brandus: Why Social Security should be a major issue in the 2020 election
In this latest proposal, the legislation would gradually phase out the cap on taxable wages and increase the payroll tax, split between worker and employer, to 14.8% over roughly 25 years (an increase of nearly 20% from the current 12.4%).
For the average worker today, the advertised cost in the higher taxes of the Social Security 2100 Act is less 50 cents per week — less than a cup of coffee at Starbucks . In reality, the weekly cost starts at that modest price, but rises over time to nearly $25 a week in lost pay once employers offset their portion of the increase in payroll taxes with lower wages.
The proposal would also phase out the limit on wages subject to payroll taxes. Today, the levy only applies to the first $132,900 of wages . That threshold is indexed to average wages so it continues to grow every year. This legislation would restart the payroll tax at $400,000, without any adjustment for inflation. So the legislation would create a doughnut hole, designed to provide temporary tax relief for current voters.
That protection would evaporate over 28 years, at which time high-wage earners would not only pay the taxes on more money, but at a higher rate. Charles Blahous, the former Public Trustee for the Social Security Trust Funds, reports that these changes together would increase total Social Security payroll tax burdens nationally by over 40% . This increase isn’t just on high-wage workers: it’s the total increase in national payroll taxes collected.
Combined, the timetable for these tax changes have led some pundits to conclude that millennials will be left to pay the bills left behind by the wave of Boomer retirees. The fact is that the leading edge of that generation will be nearly entering retirement by the time these taxes are fully in place. The kids born today, on the other hand, will be just entering the workforce, and will face the full effect of these taxes over their entire working life. If these taxes are such a good idea, why not implement them now, and save our children even a modest portion of these levies?
The hard truth is taxing people who can’t vote isn’t a tough choice, or even a common-sense approach to the serious economic challenges facing the system. Congress needs to start in the center of the argument, and build consensus around workable solutions. The last attempt at a reform package that combined tax increases and benefit cuts was drafted by a special commission from the Bipartisan Policy Center in 2016, which valued the changes against data from the end of 2015 — four years ago.
Since that time, the shortfall for Social Security has grown from $11.4 trillion to $13.9 trillion at the end of 2018. By the middle of 2019, the passage of time has cost the program another $300 billion. By the time you finish reading this column, the shortfall will have grown about another $20 million. The passage of time is programmatic cancer, and Congress hasn’t put forward a single workable proposal for the long-term stability of Social Security in four years.
I am approaching retirement age, and take a keen interest in where it will be in 25 years. It isn’t just my own interest, but a shared interest for people who are friends or acquaintances. I really don’t want anyone’s primary income stream to depend upon the idea that workers decades out will pay more taxes when we won’t.
The Social Security 2100 Act doesn’t fix Social Security. It is merely a way that our children will pay for the brokenness.
Brenton Smith writes about Social Security.