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.
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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.