Quite a few readers have asked me to comment on a bill sponsored by U.S. Rep. Sam Johnson, R.-Texas, that he calls The Social Security Reform Act of 2016.
I would call it the One-Sided Social Security Reform Act of 2016. And that’s because, like just about every Social Security reform proposal I have seen sponsored by a Republican, it is lopsided. It proposes an array of benefit cuts, but not a single suggestion to raise revenues.
Having said that, let me commend the congressman for at least taking the initiative to present a package of Social Security reforms. (Although one does have to wonder why he did so on the very last day of the current Congress.)
Still, a last-day proposal is better than none at all. Too many of our country’s leaders treat the program like a sacred cow that should never be tampered with.
But tamper they must. Some of my old friends still with the Social Security Administration tell me that they are taking something like 10,000 retirement claims each day. In other words, tax-paying baby boomers are turning into benefit-receiving senior boomers at a record pace. That demographic time bomb has been ticking for quite a while now. The longer we wait to deal with the issue, the harder it will be to implement changes.
You can think of our Social Security system as a pipeline. On one end of it are working people pumping their tax dollars into the pipe. On the other end, are senior citizens — along with people with disabilities and widow(er)s and children of deceased workers — drawing Social Security benefits out of the pipe.
For many years now, the system has worked very well at a three-to-one ratio. In other words, with three workers pumping taxes into the front end of the pipe for every one person on the back end collecting benefits.
But with 10,000 people every day moving from the input side of the pipe to the output side, we are gradually reaching the point where we will have only two workers pumping money into the system for each retiree sucking benefits out of the other end. And our Social Security system simply cannot be sustained at that two-to-one level — as it is currently structured. That’s why reform is needed.
To deal with that pending shortfall, you essentially have two choices. You can pump more money into the front end of the pipe (by raising revenues) or you can cut back on the money flowing out of the other end (by reducing benefits). Most fair-minded people agree that a reasonable solution would involve a mix of both: some tax increases and some benefit cuts.
And as I alluded to at the beginning of this column, I don’t think Congressman Johnson’s proposals meet that “fair-minded” test. His bill includes 15 specific reforms, some of them way too technical to explain in a short column.
But here is a brief rundown of the major points of his Social Security reform package.
He would gradually raise the retirement age from 67 to 69 for people born after 1967. While I think a gradual increase in the retirement age is inevitable, I think age 69 might be just a bit too steep. I agree with many other reformists who think age 68 is a better target number.
Johnson also proposes to reduce benefit payments for the top 50 percent of wage earners. Although the details of this proposal are too complex to explain here, the bill essentially means that future benefits for people making more than $50,000 per year would be cut. SSA’s actuaries project that under Johnson’s proposal, people making $50,000 per year or more could see their benefits cut between 11 percent and 35 percent. Although I, and many people, think that benefits could be trimmed for the very wealthiest Americans, I think that dropping the benefit-cutting ax on middle-class earners is way too much.
The plan also would cut cost-of-living increases for all Social Security beneficiaries and eliminate them for people with incomes over $85,000. Although most economic experts agree that Social Security COLAs could be reduced, I haven’t heard any serious proposals to outright eliminate them for anyone who is in the upper middle class or higher.
An out-of-left-field part of Johnson’s plan calls for a cut in benefits to most spouses and children of retirees and disabled workers. It would peg their benefits to the average national wage, rather than to the worker’s actual wage. In other words, benefits would go down for any family with above-average income.
Johnson did throw a bone to Democrats and others he knew would oppose his lopsided plan with a proposal to provide a minimum Social Security benefit for the very poorest annual wage earners, those averaging $12,000 or less. They would see their benefits rise by about 20 percent. But frankly, that wasn’t much of a bone, since his plan would cut benefits to anyone making more than that. So the very poorest Americans would get a boost with the Johnson plan, whereas anyone in the middle class and above would get a kick in the pants!
Once again, I applaud Congressman Johnson for at least broaching the subject of Social Security reform. I just wish his proposals were not so darn partisan. I know it is an anathema to most Republicans to suggest anything that smells of a tax increase. But had he, for example, included a proposal to eliminate or at least increase the cap on Social Security taxable earnings, or slightly raise the payroll tax (which hasn’t been increased in more than 30 years) from 6.2 to 6.4 percent, he would not have had to recommend such dramatic cuts in benefits.
In other words, a balanced mix of revenue increases and benefit reductions is the real and fair way to reform Social Security. Congressman Johnson’s plan is a place to start discussing reform, but nothing more.
