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By Sandra DeMent
Guest Editorial 

Legislation pending on Social Security

 

August 2, 2017



Sort of. In early July the Chief Actuary of the Social Security Administration released a list of dozens of letters and memos prepared at the requests of Congressmen and Senators that, as he put it, address “the long range solvency problem” of the social security trust funds. Some are narrowly focused on a particular problem, and others are major pieces of legislation designed to improve social security’s finances for 15, 45 or even 75 years.

Social security expenses since 2015 exceed payroll taxes, and the SSA now relies on trust fund IOUs to make up the difference. These funds will be “depleted” sometime between 2034 and 2037. While that seems like a long time away, social security is complicated, and would affect more than 60 million beneficiaries. As a result, changes are phased in slowly, over five, ten, sometimes 50 years, and getting a major bill passed takes several years, if normal legislative processes are followed.

Another factor, a staffer on the House Subcommittee on Social Security told me, is that any legislation would have to be bipartisan. Neither party wants to be solely responsible for changes that are going to pinch somebody, either by cutting benefits or by increasing taxes, or both. Social security has been called “the third rail” of American politics: touch it and you die. If the current debates on Obamacare are any indication, it will be a while before Congress is able to produce bipartisan legislation.

Still, the proposals are out there now. Below are three examples, offered by 1) Republican Sam Johnson, the 82-year old chair of the House Subcommittee on Social Security, 2) Senator Bernie Sanders, and 3) the Bipartisan Policy Center, a Washington think tank sponsored by four former Senate Majority Leaders, both Republicans and Democrats.

The Johnson bill and the Bipartisan bill would address social security’s funding problems until 2090, the 75 year time frame the SSA uses to assess its solvency. The Sanders bill would keep social security solvent for 60 years, until 2078. The Johnson bill would reduce benefits by approximately 30 percent over time; the Bipartisan bill would reduce benefits by about 12 percent and raise taxes modestly; and the Sanders bill would increase benefits by about 8 percent, primarily by raising the cap on taxes that are subject to payroll tax and by expanding an Obamacare investment tax on wealthy taxpayers.

The Johnson bill contains no tax increases. It achieves solvency by trimming benefits using more conservative formulas for calculating benefits, extending the age of eligibility to 69 by 2030, and eliminating cost of living increases (COLA) for those with higher incomes. His bill does eliminate taxation of social security benefits, phasing in between 2045 and 2054.

The Bipartisan bill also stretches out the age of eligibility to age 69, but does it much more slowly, so the change isn’t fully effective until 2070. Lots of time to prepare. Like the Johnson bill, the Bipartisan bill modifies the formula for calculating benefits.

All three bills seem to agree that seniors in the lowest earning category need more help, and all three bills create new calculations for seniors who have contributed for years, but earned very little. The Sanders bill actually ties the calculation for the lowest earners to the federal poverty level. The Johnson bill would give extra money to seniors who are eligible for 24 years, and who had received benefits for 20 years, and whose incomes are still less than $25,000 per year. In other words, 86 year olds with less than $25,000 annual income would receive extra money.

All three bills would make changes in how COLA is calculated. Currently COLA uses the Consumer Price Index for all Urban Consumers (CPI-U). The Johnson bill would eliminate the payment of COLA entirely to seniors with incomes over $85,000 or $170,000 per couple. Both the Johnson bill and the Bipartisan bill would use a new concept, the chain-weighted CPI-C, which factors in the ability of seniors to substitute lower priced items if they cannot afford steak. Overall, using the chain-weighted formula for calculating COLA would decrease COLA adjustments by approximately 20 percent per year. The Sanders bill uses a Consumer Price Index for the Elderly (CPI-E), which factors in the higher cost of typical expenses seniors have, such as medications, for example. The CPI-E would increase COLAs by about 20 percent per year.

All three bills would continue to allow early retirement at age 62, with the Johnson bill allowing seniors to retire up to 7 years early. Under current law, seniors lose 25 percent of their benefit if they retire up to five years early; the Johnson bill would decrease benefits by 30 percent for anyone retiring six or seven years early. The reduction would continue for the lifetime of the beneficiary.

There will be changes. Which changes, and when, remains to be seen.

 

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