U.S. senators debated Wednesday how best to resolve a funding cliff within Social Security that will lead to a quarter reduction in benefits in about a decade, absent action from Congress.
Democrats on the Budget Committee, led by Chair Sheldon Whitehouse of Rhode Island, called for lawmakers to increase taxes on the country’s wealthiest individuals to ensure that the program stays solvent for decades.
But ranking member Chuck Grassley, the senior senator from Iowa, said that all options, including changes to benefits, should be on the table as Congress begins looking toward a long-term solution for the trust fund.
Whitehouse said the solution is for the wealthy to pay more of a share in taxable earnings. “Right now the cap on Social Security contributions means a tech executive making $1 million effectively stops paying into the program at the end of February while a school teacher making far less contributes their share through every single paycheck all year,” Whitehouse said.
The Democrat noted he’s introduced legislation that would require people making more than $400,000 in wages or more than that amount in investment income to pay into the Social Security system. The cap for maximum taxable earnings is currently set at $160,200.
“These reforms raise enough revenue to make Social Security solvent indefinitely, according to a new estimate from the Social Security actuary Mr. Steve Goss,” Whitehouse said.
Grassley argued that any legislation to address the funding issues within the Social Security trust fund should follow the model that Republicans and Democrats used in 1983, when they passed bipartisan legislation to address financial issues within the program.
“While I hope we won’t wait until the last minute, the only way to reach a deal on Social Security is to follow the Reagan-O’Neill model; that means Congress and the president working in a bipartisan fashion and keeping a range of options on the table,” Grassley said. Currently, Democrats control the White House and Senate and Republicans the House, making agreements difficult to reach.
Grassley wasn’t specific in his comments about possible changes to Social Security and didn’t mention raising the age to receive full Social Security benefits. He did, however, criticize Democratic bills that would raise taxes.
“These are tax-heavy messaging bills and not real solutions,” Grassley said.
Trust fund depleted in a decade
Goss told the committee during the hearing that the most recent trustee report on the Social Security trust funds projects the Old Age and Survivors Trust Fund will be depleted in 2033, leading to a situation where the federal government could pay just 77% of scheduled benefits at that time. Goss is the chief actuary for the Social Security Administration.
If that trust fund were combined with the Social Security disability trust fund, that timeline would extend one year later to 2034, with benefits at that time dropping to 80% of what’s currently scheduled.
“This current situation should come as no surprise, as the trustees have been projecting combined fund reserve depletion between the years 2033 and 2035 ever since 2012,” Goss said.
Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, told the committee that inequality within the United States has “skyrocketed” since Congress made changes to the program four decades ago.
Cutting Social Security benefits, Romig testified, would “compromise the lifestyles of our seniors and people with disabilities,” who often use the money to pay for basic needs like housing, food and health care.
The financial security that Social Security provides is especially important to helping women and people of color stay out of poverty, Romig said.
“Women tend to earn less over their lifetimes, have smaller retirement accounts and in addition they tend to live longer,” Romig said.
“The same is true for people of color,” she added. “People of color have faced economic inequality throughout all of this nation’s history and they’re less likely to have retirement at work, less likely to have jobs with a margin for savings. And so Social Security is especially important for those groups.”
Without Social Security, Romig testified that more than half of Black retirees and more than 45% of Latino retirees would be in poverty.
Maximum benefits too high?
Andrew G. Biggs, senior fellow at the American Enterprise Institute, told the committee that he believes the maximum annual Social Security benefit is too high, saying that “$43,000 per year is far more than is needed to protect against poverty in old age.”
Biggs said that in the long-term Congress should slow the growth of benefits for middle- and high-income retirees while increasing benefits for the bottom third “to truly guarantee against poverty in old age.”
Lawmakers should also make “sure that every employee has a retirement plan available to them on the job and automatically enroll them in that retirement plan,” he testified.
“If everybody were saving as they should and could for retirement, Social Security’s job is much easier,” Biggs said.
