Marc Goldwein: Pulling Levers to Prevent Cuts to Social Security Benefits
Marc Goldwein is senior vice president and senior policy director of the Committee for a Responsible Federal Budget. He was recently featured in a Bloomberg piece on Social Security reform where four experts were asked how to fix Social Security. The other experts were Alicia Munnell of the Center for Retirement Research at Boston College arguing "a rationale for general revenue," Shai Akabas of the Bipartisan Policy Center arguing to "raise the retirement age – and minimum benefits," and Andrew Biggs of the American Enterprise Institute arguing to "scale back maximum benefits."
Goldwein argues for "pulling levers," and his excerpt is below.
Restoring solvency requires the equivalent of either reducing scheduled benefits by about a quarter, raising revenues by about a third, or a combination of the two. You wouldn’t want to do that across the board, but there are a few major levers to use that could get you most of the savings.
On the benefits side, the main levers are how you calculate initial benefits, the retirement age and the inflation adjustment. With the retirement age, you get the most impact if you change the full retirement age (FRA) — the age when you get full benefits. The FRA is 67, but it’s not indexed to life expectancy, meaning the programs will cover more and more years of retirement as we live longer. Increasing or indexing the age could limit costs.
On the revenue side, one option is to increase the amount of wages subject to the payroll tax beyond the current $160,200 maximum. Historically, that wage cap has covered up to 90% of wages; today it covers more like 83%.
The payroll tax rate provides another lever — and you could increase the 12.4% payroll tax gradually so that after-tax wages continue to grow.
Finally, you could broaden the payroll tax base and close loopholes. A lot of compensation — from health-care benefits to stock options to flex savings account contributions — is not subject to the payroll tax.
A reasonable plan would probably adopt some combination of these proposals, and phase them in swiftly but gradually.
Read the entire piece here.
Published works by members or staff of the Committee for a Responsible Federal Budget do not necessarily reflect the views of all members or staff of the Committee.