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April 07, 2024 at 10:51 AM
The debate about Social Security’s future continues to intensify, with this year’s two main presumptive candidates for president sparring over the program’s funding and benefit rules. Plus, members of Congress have been introducing and debating all manner of “fixes” to the Social Security system.
Projections from the Congressional Budget Office and private researchers show clearly that, if no action is taken, the key trust fund used to support the payment of retirement benefits will run dry by 2033 or 2034 — meaning promised benefits could then drop by 25% or more.
Few policy experts expect big changes to Social Security in the run-up or immediate aftermath of the November elections. But they have been weighing in, too, and — for example — are debating whether it’s time to do away with 401(k) plan tax breaks in order to “save” Social Security.
Here’s a look at what some reforms offered by politicians, policymakers and others, who hope their insights can help save the program.
1. Raise the Retirement Age
A proposal emerged in late March from the Republican Study Committee, which comprises about 80% of House Republicans. The group once again called for the Social Security eligibility age to be tied to life expectancy in its fiscal 2025 budget proposal.
It also suggested reducing benefits for top earners who aren’t near retirement, including a phase-out of auxiliary benefits for the highest earners.
Matt Gaetz, a self-described “firebrand” lawmaker, has also called for discussions about Social Security reforms, including a hike in the full Social Security retirement age as a partial solution to the nation’s debt-limit problems.
2. Change Social Security Taxation
In January, a bill emerged in the U.S. House of Representatives aimed at improving the financial standing of the Social Security program, this time by repealing the federal taxation of benefits while phasing out the current wage cap on taxable earnings.
The bill is sponsored by Reps. Angie Craig, D-Minn., and Yadira Caraveo, D-Colo., and is dubbed the You Earned It, You Keep It Act. According to the lawmakers, the proposed reforms would make the program fairer while also pushing out the projected insolvency date of the key Social Security retirement trust fund to 2054 — 20 years beyond the current projection of 2034.
Response to the proposal among the retirement planning community has been mixed. For example, Michael Finke, professor and Frank M. Engle Chair of Economic Security at the American College of Financial Services, said he hoped the legislation could become “a first salvo in a necessary bipartisan negotiation about how to fix Social Security.”
“Politicians aren’t going to allow an automatic cut of benefits in 2033,” he said. “There are only two ways to prevent the benefit cuts — raise taxes or reduce benefits. No politician wants to cut benefits, so it seems inevitable that taxes will go up.”
Finke argues that an ideal solution would be some combination of raising the amount of income subject to taxes, increasing the net income tax on capital gains, modifying the inflation adjustment to more accurately reflect retiree spending, and increasing the full retirement age.
