Patrol the halls of Congress and you’d be hard-pressed to find any lawmaker that knows what is being done to fix the Social Security financing gap. As it stands right now, there will be enough funds available to pay out full Social Security benefits for the next 20 years only.
But a new study finds that the public is very clear on a solution. The majority of Americans are willing to increase the Social Security wage tax in order to extend benefit coverage out to 75 years, and also improve benefits along the way.
That is a key finding of the new study, “Americans Make Hard Choices on Social Security: A Survey with Trade-Off Analysis,” recently released by the National Academy of Social Insurance, a nonprofit, nonpartisan organization made up of leading experts on social insurance.
According to Virginia Reno, the academy’s vice president for income security policy and co-author of the study, its purpose was to seek a most-desired solution directly from the public. So survey participants were presented with a variety of 12 options that would each take a different path toward the same end game: funding benefits for a period of 75 years.
The trade-off exercise allowed participants to choose among different packages of Social Security changes, the report highlights explains. They could weigh how each policy change would affect workers, retirees, and the program’s future financing gap.
“In the trade-off analysis, we included 12 different policy changes. Four were revenue increases. Four were benefit reductions. Four were benefit increases,” Reno said. “The one that was favored by seven out of 10 respondents would gradually increase [Social Security] taxes in two ways.”
First up is gradually – over 10 years – phasing out the cap on earnings below which Social Security wages are levied. That is currently $117,500, and increasing to $118,000 in 2015. In this option, 6 percent of workers who earn more than the cap would pay into Social Security all year, as other workers do, and in return would get slightly higher benefits.
The second part involves gradually – over 20 years – increasing the contribution rate from 6.2 percent to 7.2 percent for both workers and employers alike. This part of the plan wouldn’t start for another five years, but once in effect would increase Social Security tax withholdings by 1/20 of 1 percent each year for the 20 years. A worker earning $50,000 annually would pay an additional 50 cents per week into Social Security, as would their employer.
A third feature of this most-popular option would increase Social Security’s cost-of-living adjustment to reflect actual inflation.
A fourth element would raise Social Security’s minimum benefit so that anyone who pays into Social Security for 30 years would be eligible to retire at age 62 or later, and be guaranteed benefits above the federal poverty level.
Whatever You Do, Don’t Touch our Benefits
The study is actually the second time the academy has polled the public on its views of Social Security and options for bolstering the system. The first study results were released in January 2013. There will few differences in the results both times.
“It’s quite consistent across the various aspects of the survey that people value the system; they have favorable views of Social Security; they value what it does – both for people they know and in the hope they get it themselves someday,” Reno said.
Most importantly, “they say they don’t mind paying for it because they value what it does. And if it’s necessary to pay more in order to preserve it for future generations, they want to do that,” Reno said.
As to weighing increased taxes versus reduced benefits, that is a no-brainer, says the public.
“They opt overwhelming for revenue increases,” Reno said.
That finding is confirmed by other recent research. This past June the Pew Research Center published study findings that the majority of Americans oppose any reduction in Social Security benefits. Their message to the government: whatever you do to fix Social Security, hands off our benefits.
As noted in Forbes article, that seems to be one of the few topics on which most Americans do agree.
“Support for Social Security spans not only across the political spectrum, but the generations. While half of younger folks say they believe they’ll never get any Social Security benefits, 61 percent of millennials and 67 percent of GenXers oppose any cuts.”
Understanding the Options Increases Confidence
Due to the strong public sentiment these two studies reveal, it may in fact be a good thing that the government has done little in recent times to address the Social Security finance gap.
“Back in the ‘70s and ‘80s, policy makers often adjusted Social Security to keep it in long-term balance. The last major adjustments were made in 1983, which is 30 years ago,” Reno said. “In the past, what was very common when it looked like [Social Security] was under-financed was to schedule a modest increase in the contribution rate out to the future when it would be needed. But that hasn’t been done.”
“Another approach has been to gradually reduce the level of benefits that are promised to future beneficiaries. Much of the conversation inside Washington within the last 10 to 15 years has focused more on reducing benefits than on scheduling the revenues that would pay for it,” Reno said.
Finally, Reno stressed that the study revealed another important finding. When individuals understood the options available for addressing the financial gap, they felt much more confident in the system and that steps would be taken to protect future retirees.
“We asked people about their confidence in the future of the system. It was not surprising that confidence was low,” Reno said. “Seventy percent thought it was a crisis or a significant problem.. Only 30 percent said it was a management problem or not a problem at all.”
“When we asked a follow-up question— ‘if you knew that increasing the Social Security taxes from 6.2 percent to 7.2 percent for both workers and employers would ensure that Social Security could pay full benefits for the next 75 years’—and asked that original question again, those who thought it was a crisis or a significant problem fell from 70 to 33 percent. Likewise, those that thought it was a manageable problem or not a problem at all rose from 30 percent to 67 percent,” Reno concluded.