Ways and Means to Hold Hearing on Social Security 2100 Act

The House Ways and Means Committee will hold a hearing on Social Security Subcommittee Chairman John Larson’s (D-CT) Social Security 2100 Act (SS2100) on Thursday. The bill represents a comprehensive plan to rescue Social Security from its pending trust fund insolvency in 2035, making the program sustainably solvent for the next 75 years and beyond while also increasing benefits. While SS2100 is far from the only way to fix Social Security’s finances, it is an important and responsible starting point for discussion.

Social Security is the single largest government program, accounting for one-quarter of all federal spending and almost 5 percent of Gross Domestic Product (GDP) in 2019. The Social Security Trustees project that the theoretically-combined trust fund will be exhausted in 2035 – 16 years from now, when today’s youngest retirees turn 78 and today’s 51-year-olds reach their full retirement age – causing a 20 percent across-the-board benefit cut if nothing is done to bring spending in line with revenue. (See how old you’ll be when Social Security’s trust fund runs out.)

Despite the urgency of the situation and the severe consequences of inaction, many lawmakers have chosen to ignore the issue, and some have even proposed reforms that would make the program's structural imbalance even worse. In that context, this hearing is a welcome and encouraging development.

What’s In Social Security 2100?

The Social Security 2100 Act would:

  • Increase the combined payroll tax rate by 2.4 percentage points, from 12.4 to 14.8 percent, phased in by 0.1 percentage points per year over 24 years
  • Apply the entire payroll tax to earnings above $400,000 and, ultimately, to all income as the current wage-indexed maximum of $132,900 caught up.
  • Offer some benefit credit for new taxes paid by increasing benefits by 2 percent of all wage income above $400,000 through a formula known as AIME+
  • Increase the income threshold for taxation of 85 percent of Social Security benefits to $50,000 for single filers and $100,000 for joint filers, up from $34,000 and $44,000
  • Increase the lowest Primary Insurance Amount (PIA) factor in the benefit formula from 90 to 93 percent, increasing benefits across the board
  • Use the faster-growing, experimental Consumer Price Index for the elderly (CPI-E) for Cost-of-Living Adjustments (COLAs)
  • Create a minimum benefit of 125 percent of the poverty line for people who have worked 30 years or more
  • Combine the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds into one Social Security trust fund


How Would Social Security 2100 Improve Solvency?

While benefit expansions in the legislation would worsen Social Security’s shortfall by about a third, tax increases in the legislation would not only offset this cost but also restore long-term solvency to the trust fund.

Provision Change in 75-Year Shortfall Change in 75th Year Shortfall
Benefit Increases and Tax Cuts
  Change the benefit formula to increase benefits across the board -8% -6%
  Adopt CPI-E for COLAs -14% -13%
  Provide a new minimum benefit for low earners based on years in the workforce -4% -4%
  Increase income thresholds for taxation of Social Security Benefits -6% 0%
Sub-Total -32% -23%
Offsets and Solvency Measures
  Apply payroll tax to income above $400,000 and credit benefits at lower rate 67% 54%
  Increase the payroll tax by 0.1 percentage points per year until it reaches 14.8% 64% 55%
  Combine OASI and DI Trust Funds into single trust fund 0% 0%
Sub-Total 131% 109%
Interactions 11% 10%
Total Impact on Social Security Shortfall 109% 97%

Source: CRFB calculations based on Social Security Chief Actuary estimates.

Overall, the plan would reduce Social Security’s 75-year shortfall – currently estimated at 2.84 percent of taxable payroll – by 109 percent (3.10 percent of taxable payroll). It would also reduce the 75th year shortfall – currently estimated at 4.32 percent of taxable payroll – by 97 percent (4.19 percent of taxable payroll). In other words, the legislation would bring revenue and spending roughly in line, which is important for assuring the long-term sustainability of the program.

Chairman Larson deserves praise for proposing a long-term fix to one of the nation’s most pressing issues. Indeed, Social Security 2100 is the only plan introduced this Congress that we are aware of that would achieve the important goal of sustainable solvency for Social Security. A proposal by Senator Bernie Sanders (I-VT) and Representative Peter DeFazio (D-OR), for example, would close only half of the program’s structural gap. Legislation put forward by Senator Mazie Hirono (D-HI) and Representative Ted Deutch (D-FL) would close only two-fifths. Social Security 2100 closes 97 percent.

What Are the Benefits and Concerns With Social Security 2100?

Besides restoring solvency, Social Security 2100 includes a number of important features. It acknowledges the need to raise revenue broadly to save the program, it offers important benefit enhancements for vulnerable seniors, and it avoids relying on general revenue transfers or tax and spending gimmicks to make the numbers add up. However, there are also some areas of concern with the bill.

For example, SS2100 would expand Social Security benefits across the board despite that fact that many retirees are doing relatively well and Social Security is already the largest (and one of the fastest growing) government programs.

Especially troubling, one of these benefit enhancements involves adopting the CPI-E, an experimental index tracking seniors' costs of living, to calculate COLAs. As we’ve explained before, this index is very poorly designed and overstates cost-of-living growth for seniors as well as the broader population. In addition to suffering from sample-size and composition issues and substitution bias, the CPI-E ignores senior discounts and outlet choice and overstates the cost growth of health care and housing for seniors. In doing so, it arbitrarily expands benefits across the board and does so in a way that would especially benefit those with high lifetime earnings and long life expectancies.

The legislation does pay for these expansions – specifically by subjecting all earnings to the (14.8 percent) payroll tax and imposing a nearly 20 percent (2.4 point) payroll tax increase for all workers. While more revenue is surely needed, that tax increase would total almost 1.8 percent of GDP when fully phased in – the equivalent of a $4.7 trillion tax increase over the next decade (actual revenue would be closer to $1.5 trillion through 2029 due to the phase in). Such a large increase in revenue should be considered in the context of the overall budget before committing that much new revenue to a single program, given the many unmet needs that remain.

Indeed, the legislation would raise the top effective tax rate on earned income by almost 15 points, bringing it close to 60 percent in a typical state. That is relatively close to the revenue-maximizing level, especially in high-tax states, and therefore would leave little room for further tax rate increases at the top.

The size of these tax increases, along with benefit expansions, may also dampen economic growth. While most Social Security reform plans would actually improve incentives to work and invest and thus boost GDP, the Penn Wharton Budget Model has estimated Social Security 2100 would actually reduce GDP by about 2 percent after three decades.

Can Social Security 2100 Save Social Security?

While no bill is perfect, Social Security 2100 would indeed restore sustainable solvency to Social Security, and Chairman Larson deserves huge praise for putting it forward and holding hearings on it. Lawmakers who dislike the solutions put forward in SS2100 should suggest their own, and there are plenty to choose from.

While SS2100 would restore solvency entirely with tax increases, for example, former Chairman Sam Johnson’s (R-TX) Social Security Reform Act of 2016 would take the opposite approach – attaining solvency purely through benefit cuts. The Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings – the Conrad-Lockhart plan – proposed to restore solvency through a combination of revenue and benefit changes. All three approaches would get to sustainable solvency and are worthy of consideration and debate. Other proposals from Reid Ribble, Andrew Biggs, Tom Coburn, and the Simpson-Bowles commission are also worth reviewing.

Many more approaches are also possible. Our Social Security Reformer tool allows anyone to design their own plan with many different combinations of revenue and benefit changes. While there is no one way to save Social Security, time is running out to do so thoughtfully.

Regardless of the precise approach policymakers choose to take, it is good to see Chairman Larson continuing the conversation on the urgency of solving Social Security’s financial imbalances, especially with a bill that gets to sustainable solvency. We look forward to lawmakers discussing the Larson bill and other approaches to strengthening, protecting, modernizing, and reforming Social Security benefits for current and future generations.