Reforming Social Security’s finances. With some minor adjustments, we could make Social Security solvent for the next 75 years. Bob Ball, Commissioner of Social Security under Presidents Kennedy, Johnson and Nixon, says the anticipated shortfall in Social Security’s finances can be fixed without benefit cuts or privatization. Here’s how his Social Security Protection Plan (pdf) would work:
• Over the next 40 years, raise the earnings limit for payroll taxes ($94,200 in 2006) very gradually back up to its traditional level. The plan in 1983 was to tax 90% of all earning — giving the richest 10% a pass on the earnings above the limit. But their earnings have grown so much faster than most of our incomes, that they top 17% of income is now given a pass (no payroll tax).
• Dedicate estate taxes to Social Security. The estate tax would be set at 2009 levels so only estates greater than $3.5 million ($7 million for a couple) would be taxed. This new source of reve;nue partially repays Social Security for the deficit it incurred in its early years. Social Security paid many generations of workers higher benefits than their contributions funded, and this tax recoups part of that debt owed by earlier generations.
• Over the next 20 years, invest the trust fund in equities gradually up to a maximum of 20%. Current law requires Trust assets to be invested in special U.S. government bonds. But other federal programs (the Railroad Retirement program), other countries (Canada) and all similar public and private pension plans invest in stocks as well as bonds. This should increase Social Security’s resources while protecting the benefits of individual workers from the risk of a market downturn at retirement. Another approach to reforming Social Security. Here’s another plan, Reforming Social Security: A Balanced Approach (pdf), by two noted economists:
First, some gradual reductions in benefits and adjustments to payroll taxes:
- raise the earnings limit forst-paid 15% of workers slightly
- include all state and local government workers payroll taxes back to its 20-year average level.
- reduce benefits for the highe
- add a 3% payroll tax on currently untaxed earnings above about $90,000
- reduce benefits and increase payroll taxes slightly beginning in 2023.
Next, some benefit improvements for the most needy:
- increase benefits for minimum wage workers
- improve widows’ benefits.
What does this mean? The disabled and children who have lost a parent and workers age 55 or older in 2004 receive the same benefits as they do today. Younger workers have minor benefit cuts. The payroll tax rises from 6.2% in 2005 gradually to 7.1% in 2055. These modest changes extend Social Security’s solvency from 2042 passed 2075 without the help of government funds or exposing benefits to stock-market risk.
One independent analysis (pdf) says this plan would solve the problem without budgetary gimmicks or wishful assumptions.
Reform or revolution for Social Security? But others propose drastic changes for Social Security. Rather than fix Social Security’s finances directly, they would cut current benefits greatly over time and hope that private accounts will make up the difference for individual workers at retirement. They also would add government funding – not to bring Social Security’s finances into balance, but only to pay the costs of setting up private accounts.