On the day Congress recessed for the summer, bipartisan legislation was introduced in the U.S. House of Representatives that would substantially increase the current payroll cap on Social Security taxes.

The Save Our Social Security Act, introduced by Rep. Reid Ribble, R-Wis., has four other Republican co-sponsors, along with one Democrat.

Under existing law, the 12.4% Social Security tax applies to the first $118,500 of earners’ wages. The S.O.S. Act would raise that to $156,550 for fiscal year 2017, $194,600 in 2018, $232,650 in 2019, $270,700 in 2020, and $308,750 in 2021.

The proposed legislation would also raise full retirement from age 67 to 69, which would be phased in beginning in 2022 over the course of the subsequent 12 years. The maximum retirement age would be increased from 70 to 72.

Those provisions, along with changes to how benefits are calculated, and how cost of living adjustments are indexed to inflation, would put the Social Security program on the road to solvency, “with all scheduled benefits fully payable on time” during a 75-year projection period, according to actuaries at the Social Security Administration, which scored the proposed legislation.

SSA’s latest trustee report shows that, under existing law, beneficiaries can expect a 21% reduction in scheduled benefits beginning in 2034, when the combined trust fund reserves of the Old-Age and Survivors Insurance, or OASI program, which pays benefits to retirees, and the Disability Insurance program, which covers disabled workers and its beneficiaries, are depleted.

Calls to address Social Security’s solvency issues with tax increases have been common from Democrats over the past decade.

But Republican lawmakers have focused proposals on partially privatizing the Social Security trust fund to give individuals greater control over how their Social Security taxes are invested.

Reaction from chamber, policy experts

In the days after Ribble’s legislation was introduced, Bruce Josten, vice president for government affairs at the U.S. Chamber of Commerce, was strongly supportive of the Republicans’ effort to advance the debate on Social Security reform.

“Social Security can be reformed in a variety of ways to achieve long-term solvency,” said Josten in a release. He did not explicitly endorse the exact provisions in the legislation, but did say the approaches taken in the S.O.S. Act are “worth considering carefully.”

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonprofit, nonpartisan Washington, D.C.-based think tank, commended Ribble’s bill for incorporating components of both parties’ platform approaches to Social Security reform.

The act prevents inventible benefit cuts “through a thoughtful mix of new revenue, progressive benefit changes, and increases in retirement age,” said MacGuineas in a statement. “And it does it in a way that allows benefits to continue to grow for all beneficiaries, but especially the most vulnerable. That framework should appeal to Republicans and Democrats alike.”

Mitch Daniels, the former Republican governor of Indiana, and former Sen. Kent Conrad, D-North Dakota, are among the former elected officials from both parties that sit on the Committee for a Responsible Federal Budget’s board of directors. Officials from each administration dating back to the Nixon presidency, including Paul Volker, Erskine Bowles, Paul O’Neil and Peter Peterson are also among the directors.

Reaction from conservatives

Public reaction from Republicans has been minimal, if any, but that could be explained by the fact that Congress has been in recess since the bill’s introduction.

But some conservative policy analysts have already voiced concern for the S.O.S Act, portending resistance from at least some Republicans to the bill.

Rachel Greszler and Romina Boccia, policy analysts at the Heritage Foundation, a conservative, Washington, D.C.-based think tank, acknowledged that the act’s tax increases would put Social Security on the road to solvency, but argue the larger macro impact of tax increases will ultimately hurt overall federal and state tax revenues.

By raising the cap on earnings, employers will be incentivized to “reduce employees’ taxable wages in response to having to pay higher payroll taxes,” the economists wrote on dailysignal.com, which is published by the Heritage Foundation.

Greszler and Romina estimate that the impact of the new taxes would bump the marginal tax rate for a two-earner family of four, residing in California, with $125,000 in income to 55%; total tax rates for higher earners could near 70% of income in some states under the new increases.

“Excessive marginal tax rates would further diminish taxable wages by reducing the incentive to work,” write the economists.

Collecting on 90% of earnings

In a recent Huffington Post podcast, “So That Happened,” Ribble explained that the S.O.S Act was the culmination of a year-and-a-half long effort from his office.

He had expected bipartisan legislation to reform Social Security from committees with jurisdiction over SSA throughout the past six years, but none emerged, in spite of repeated urging from actuaries to lawmakers.

“They would tell us time is your friend, but it is also your enemy,” Ribble said of the actuaries, as reported on the Huffington Post’s podcast.

He called his legislation the “broadest, most balanced solution to fixing the Social Security system” the country has seen since 1983, when legislation was enacted that in part increased the retirement age during the Reagan Administration.

The bill increases protections to the poorest and most aged Americans, while “protecting the middle class,” Ribble said in the interview.

In a statement announcing its introduction, Ribble said the bill would protect the poorest Americans by creating a minimum benefit of 125% of the poverty level. Today, 9% of seniors live in poverty. Ribble said his bill would halve that.

He also said the proposed increases on earnings caps would mean Social Security would be collecting on 90% of the country’s total payrolls, a level equal to that under the Reagan Administration, as opposed to the 81% of total payroll collected on today.

“Whether this happens this year or 10 years from now, this will be the framework,” Ribble said.

Bon voyage

At a press conference outside the capitol on the day Congress was set to recess for the summer, Ribble said lawmakers’ inaction on Social Security reform over the past six years is “almost fiduciary malpractice.”

Elected in 2010, Ribble won’t have to worry about conservative blowback to his proposed tax increases at the polls, as he had previously announced that he is not seeking re-election. As have Republican co-sponsors Rep. Daniel Benisk, R-Mich., Rep. Cynthia Lummis, R-Wyo., and Rep. Scott Rigell, R-Va. A fifth Republican sponsor, Rep. Todd Rokita, R-Ind., is reportedly considering a run for governor in that state to replace vice-presidential nominee Michael Pence.

The lone Democratic sponsor of the S.O.S Act, James Cooper, D-Tenn., is seeking re-election this fall.

During the press conference, Cooper said the fact that Republican lawmakers are behind tax increases is “an important breakthrough.”

The bill is “not a perfect solution — there is no perfect solution — but at least it is a solution,” said Cooper.

“We know nothing will happen in the remaining days of this Congress,” added Cooper, but the bill sets the table for debate next year, he said.

A representative from Ribble’s office said the S.O.S. Act has garnered positive support behind closed doors, but acknowledged that the politically polarizing nature of Social Security reform means it faces an uphill battle in the immediate future.

The 2016 Democratic Party Platform, which is being ratified at this week’s convention in Philadelphia, says the party will fight every effort to weaken Social Security benefits, including attempts to raise the retirement age.

The 2016 Republican Party Platform says the party opposes tax increases and supports the power of markets to secure the future of Social Security, but did say that of the many reforms being proposed, “all options should be considered to preserve Social Security.”

— Related on ThinkAdvisor:

Save