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Retirement Planning > Social Security

Everyone Wants to Save Social Security, but How?

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Both Republicans and Democrats say they want to save Social Security, which is expected to deplete its reserves by 2034, but if Wednesday’s congressional hearing on the topic is any indication, they will have a hard time doing that.

Unlike the bipartisanship displayed in the House Ways and Means Committee’s unanimous passage of the SECURE Act, which makes changes to rules for private retirement plans, Wednesday’s Social Security subcommittee hearing on protecting and improving the program illustrated sharp differences between the two parties on how to accomplish that.

Democrats on the House Subcommittee on Social Security supported revenue increases included in the Social Security 2100 Act, sponsored by the subcommittee chairman, John Larson, D-Conn. It includes a gradual hike in the current payroll tax from 12.4% to 14.8% over the next 24 years and subjects annual income above $400,000 to the tax. This would create a “donut hole” in which income between the payroll tax ceiling — currently $132,900 — and $400,000 would not be subject to the tax.

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The act would also merge the Old-Age and Survivors Trust Fund with the Disability Insurance Trust Fund, raise the minimum benefit to 25% above the poverty line, link cost-of-living adjustments to the Consumer Price Index for the Elderly and eliminate the taxation of Social Security benefits for those with non-Social Security income above $50,000 for singles and $100,000 for couples, up from $25,000 and $32,000 currently.

Republicans on the subcommittee, in contrast, opposed any hike in the payroll tax to fund Social Security and appeared open to program cuts.

“I’m not for raising more taxes on the American people,” said Rep. Jodey Arrington, R-Texas. Then, referring to the SECURE Act, which raises the age for required minimum distributions for IRA and 401(k) plans from 70-1/2 to 72 and passed the House Ways and Means Committee last week, Arrington suggested that Congress consider Social Security fixes that account for retirees living longer.

“We have to act now,” said Rep. Ron Estes, R-Texas, but he opposed any solution that caused “devastating tax increases,” which he said would slow the economy and hurt millennials and small businesses.

Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare and one of several people testifying at the hearing, noted that the payroll tax increase would not occur in one year but gradually over 24.

Stephen Goss, the chief actuary of the Social Security Administration who has worked at the agency for 45 years, explained that without comprehensive Social Security reform — the last such reform was in 1983 — benefits will decline 21% by 2034 and 26% by 2092, paid out from monies collected from payroll taxes.

“Enacting changes well before reserve depletion, even with delayed effective dates, will allow more options to be considered, more advance warning for those affected and a more gradual phase-in of adjustments,” Goss said.

He explained that by 2034, Social Security benefits will cost about 6% of GDP, up from about 4.6% currently. “Adjustment in the level of income or benefits will be needed.”

The changes included Social Security 2100 Act would close that gap, providing 1% of GDP to fully finance currently scheduled benefits for 75 years, another 0.3% of GDP for increases in scheduled benefits and 0.1% to boost reserves, acccording to Goss. He said the bill is “one of several that would meet the requirements for sustainable solvency.” His office has analyzed multiple bills to maintain solvency of Social Security.

Larson said he was holding the Wednesday hearing “to shine a light on all the options to enhance and expand Social Security,” which is especially needed since nearly half of American households headed by someone 55 or older have no retirement savings, according to a GAO report. “To do nothing is not an option.”

Although Larson noted that there is bipartisan support to shore up the program, no Republican has signed on as a co-sponsor of his bill.

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