There is no question that as the tens of millions of working and tax-paying baby boomers retire and turn into senior boomers collecting Social Security benefits, some adjustments will be needed to keep the program viable for future generations.
As I pointed out in last week’s column, the system doesn’t need a massive overhaul. Just a few relatively modest tweaks to the tax and/or benefit structure will work.
But even minor changes to the status quo cause consternation among both politicians and voters. Americans seem to be looking for easy answers in which no one’s benefits are cut and no one’s taxes are raised — especially not their own.
So here’s a chance for you come up with solutions to Social Security’s funding problems. Let’s see if you can save Social Security.
Listed below are 10 commonly mentioned proposals for reforming Social Security.
Four involve cutting benefits and four deal with raising revenues.
Two more concern so-called privatization plans for the system. Next to each is a number expressed as a percentage. The number indicates the portion of Social Security’s long-range deficit that would be eliminated if the proposal became law. So if you can find solutions totaling 100 percent or more, you’ve saved Social Security. Also listed is a brief argument for and against each proposal.
Proposals that would reduce benefits
Raise the retirement age to 70 by 2060 — a 68 percent fix.
Why this is a good idea?
- People are living longer, healthier lives and, with enough lead time, they would be able to plan for the delay in receipt of their benefits.
Why this is a bad idea?
- Would you really want to work until you are 70 years old? Employers will be faced with higher health care costs for older workers.
Reduce cost-of-living adjustments paid to Social Security beneficiaries by one-half of 1 percent — a 25 percent fix.
Why is this a good idea?
- Economists believe the current formula overstates inflation for seniors.
Why is this a bad idea?
- I’ve never met one senior citizen who believes the economists. Also, COLA reductions are cumulative. The longer you live, the more you will suffer financially.
Reduce benefits by 5 percent for all future retirees — a 35 percent fix.
Why is this a good idea?
- All retirees should share responsibility for shoring up Social Security.
Why is this a bad idea?
- Lower-income beneficiaries could not afford the reduction.
Means test: Reduce benefits to those making more than $100,000 — a 50 percent fix.
Why is this a good idea?
- It ensures Social Security paid only to people who need it the most.
Why is this a bad idea?
- It would turn Social Security into a welfare program.
Proposals that would raise revenues
Raise Social Security payroll tax by one-half of 1 percent — a 53 percent fix.
Why is this a good idea?
- The Social Security tax has not been increased in more than 30 years. This would be a modest price to pay for long-range Social Security stability.
Why is this bad idea?
- An extra tax burden would discourage savings and investment.
Tax all earnings (current payroll tax base is $118,500) — a 73 percent fix.
Why is this a good idea?
- It impacts only higher-income people who can afford it.
Why is this a bad idea?
- It would be a huge tax burden for the very wealthy.
Make folks pay income tax on all Social Security benefits (currently only a portion is taxed) — a 16 percent fix.
Why is this a good idea?
- All other pensions are fully taxed.
Why is this a bad idea?
- It would impact middle-income taxpayers the most.
Require all state/local government workers to pay into Social Security — an 11 percent fix.
Why is this a good idea?
- All working Americans should pay for Social Security.
Why is this a bad idea?
- It would jeopardize many well-run government employee pension plans.
Proposals that involve some form of “privatizing” Social Security
Invest 40 percent of Social Security trust funds in private markets — a 48 percent fix.
Why is this a good idea?
- It would yield higher rate of return than current Treasury note investments.
Why is this a bad idea?
- Protracted market downturns could have dire consequences on a national retirement system. And do we want the feds to own a major share of private corporations like Apple or Phillip Morris?
Create personal accounts by diverting 2 percent of payroll tax to individuals — a 0 percent fix.
Why is this a good idea?
- It gives individuals potentially greater returns and more of a say in their financial futures.
Why is this a bad idea?
- Individuals would assume all risks of retirement investments. There would be very high transition costs, running into the trillions of dollars, to switch to the new system.
(This is a 0 percent fix because it does nothing to increase revenues or decrease spending. It merely diverts money away from the current system.)
