Senators Begich and Murray Propose Social Security Benefit Enhancements
Last week, Senator Mark Begich (D-AK) and Senate Budget Committee Chair Patty Murray (D-WA) introduced legislation that would make targeted increases to Social Security benefits. While we are certainly disappointed the proposal does not meaningfully address Social Security's looming insolvency, we are encouraged this legislation would focus on targeted rather than broad-based enhancements as in some prior benefit increase proposals; and we are especially encouraged that the legislation's cost would be more than fully offset.
The proposal does not change the "primary benefit" under Social Security, but instead focuses on benefits provided to dependent beneficiaries. Specifically, it includes three benefit enhancements:
- Enhance benefits for divorced spouses. Currently, a divorced spouse can receive dependent benefits only if the marriage lasted 10 years or more. Under this proposal, benefits would offer 50 percent of the dependent benefits if a marriage lasted only 5 years, and phase up to full benefits by an additional 10 percent per year of marriage thereafter.
- Increase survivors benefits. Currently, a retired couple is generally guaranteed to receive at least 150 percent of the higher earners benefit (more if the second earner had high enough wages to qualify on his or her own record), while a widow(er) receives the greater of their own worker benefit or the benefit of their deceased spouse. This means that the total household benefit will fall by at least one third after one spouse dies. This bill would create an alternative formula that allows a survivor to receive 75 percent of the combined couple's benefits, so that total household benefits fall by at most one quarter.
- Restore the "student benefit". Currently, children 18 and under can receive dependent benefits from a retired or disabled parent. Prior to 1985, this benefit was available up to age 22 for children enrolled in school. This policy was abolished in 1981, in part due to significant overpayments and its poorly targeted nature (college students tend to have higher lifetime incomes than working young adults). This bill would restore the student benefit.
Together, these benefit enhancements would cost about $210 billion over the next ten years, and add about 0.22 percent of payroll to the program's 75-year actuarial shortfall (about 8 percent). To finance these costs, the legislation calls for a 4 percent payroll tax on income above $400,000 (in 2014, income above $117,000 is not subject to the Social Security payroll tax), split evenly between employer and employee. This tax would raise about $290 billion from high earners, so the whole proposal would save about $80 billion over the next decade.
According to the Office of the Chief Actuary, the combined spending and tax measures would extend the life of the Social Security Trust Fund for another year, until 2034, and reduce the 75-year shortfall by almost 4 percent.
|75th Year Impact
|Enhance benefits for divorced spouses
|-.02 pct of payroll
|-.01 pct of payroll
|Increase survivors benefits
|-.11 pct of payroll
|-.12 pct of payroll
|Restore "student benefit"
|-.09 pct of payroll
|-.08 pct of payroll
|Subtotal, increased benefits
|-.22 pct of payroll
|-.21 pct of payroll
|Impose 4% payroll tax on earnings above $400,000
|+.32 pct of payroll
|+.34 pct of payroll
|+.10 pct of payroll
|+.13 pct of payroll
Source: Office of the Chief Actuary, CRFB calculations. Numbers rounded. Positive numbers represent improvement in actuarial balance.
As we have long argued, there’s a strong case for targeted enhancements to Social Security benefits. But it would be preferable to consider these changes in the context of comprehensive reform that gets the program’s finances under control. This financing challenge is increasingly urgent. According to the Social Security Trustees, the Disability Insurance Trust Fund is set to run out in 2016 and Social Security as a whole expected to become insolvent by 2033.
Luckily, the options to reform Social Security are for the most part well known. Our Social Security Reformer tool gives users the ability to pick from a number of revenue and benefit changes – including benefit enhancements like those in the Begich-Murray bill – in order to make the program solvent. Users can try their hand at the game here.
We hope that Senators Begich, Murray, and others work to combine any benefit enhancements with a thoughtful and comprehensive plan to make the program solvent for this and future generations.