Social Security Needs Real Reform
August 20, 2014
Social Security's deficit has quadrupled since 2008, says Andrew Biggs, resident scholar at the American Enterprise Institute. In 2008, the Congressional Budget Office (CBO) reported that the United States would need to increase the payroll tax by 1.06 percentage points in order to meet the program's funding shortfall. Now, the CBO has revised that figure to 4 percent. The program's trust fund will be depleted in 2030.
According to Biggs, many policymakers took the 2008 CBO projections to mean that the program was in no need of urgent reform. Clearly, that is not the case: Social Security needs an injection of $15 trillion today in order to earn enough interest to pay recipients full benefits over the next 75 years.
But rather than cut back on spending, Congressional lawmakers are looking at ways to expand the program without offering structural reforms:
- A bill introduced last week by Rep. John Larson (D-Conn.) would increase benefits and raise cost of living adjustments for all recipients.
- Senator Tom Harkin (D-Iowa) has a plan that would eliminate the earnings cap on which payroll taxes are applied, effectively raising the top marginal income tax rate by 12 percentage points. His bill would only add 16 years of life to the program before it is again at risk of being insolvent.
- Senators Mark Begich (D-Alaska) and Patty Murray (D-Wash.) would tax earnings above $400,000 at 4 percent. This would do little to improve the program, cutting the program's deficit by just 3 percent.
Recently, the NCPA released a report by Liqun Liu, Andrew J. Rettenmaier and Thomas R. Saving outlining a plan to reform the Social Security program. According to the authors, a reformed Social Security program could yield higher benefits for low earners.
Source: Andrew G. Biggs, "Liberals for Social Security Insolvency," Wall Street Journal, August 19, 2014.
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