Congressman Chaffetz (R-UT) has just proposed a Social Security reform plan to restore solvency to the program. The plan relies on reforms to the benefit side of the equation and calls for slowing the growth of benefits for higher-earners, increasing the numbers of years over which benefits are calculated, fixing the cost-of-living calculation by switching to the chained CPI, and enhancing benefits for lower-income earners and the very old, among other changes. His plan succeeds in putting the program in actuarial balance, both over the 75-year window and in the 75th year. Additionally, the plan would eliminate the program's cash-flow deficits by 2051.
The plan calls for the following reforms:
|Proposal||75-Year Actuarial Balance (Percent of Shortfall Closed)||75th Year Actuarial Balance (Percent of Shortfall Closed)|
|Gradually raise retirement age to 69 in 2034||44%||54%|
|Calculate COLA's using chained CPI||22%||17%|
|Implement progressive price indexing with new bend point at 50th percentile||41%||50%|
|Increase the number of years used to calculate benefits from 35 to 40 years||21%||17%|
|Create new minimum benefit||-5%||-4%|
|Create new old-age increase in benefits||-5%||-3%|
|Reduce benefits for higher earners||11%||8%|
|Share of Existing Shortfall Closed*||109%||113%|
Note: Estimates based off of stand-alone basis relative to current law and do not reflect interactions. Actuarial shortfall over 75 years is 2.22 percent of taxable payroll and 75th year shortfall is 4.24 percent of taxable payroll.
*Numbers may not add due to interactions.
His plan also allows for the creation of private accounts with contributions equal to 2 percent of taxable earnings, but this proposal does not as of yet have a score because some details still remain to be worked out. Nevertheless, putting in place a plan to fix Social Security is critical for future retirees since the system will no longer be able to provide full benefits -- only 77 percent, in fact -- starting 2036.
Putting a plan in place now would give future retirees the time to adjust and would expand the options available to lawmakers to put the plan in balance before the trust funds are exhausted. Congressman Chaffetz deserves much credit for being brave enough to put forward a plan at a time when both the Republican and Democratic offers within the Super Committee leave Social Security off the table. Lawmakers must embrace Social Security reform both for the sake of beneficiaries and the federal budget.
As CRFB President Maya MacGuineas stated in a press release this morning:
"There are many potential levers that lawmakers could choose from to help set Social Security and the budget on a stronger path, and Congressman Chaffetz has proposed how he would do so. He will surely take many arrows for putting a specific proposal on the table, but instead, it should be the beginning of an important national discussion on how to fix this important program."