A proposal by the Committee for a Responsible Federal Budget calls for a cap on Social Security benefits to help shore up the insurance program.
The Trust Fund Solutions Initiative white paper offers what it says is a new option to improve Social Security solvency via a Six Figure Limit, which "would set a $100,000 cap on the total benefit a couple retiring at the Normal Retirement Age (NRA) can receive starting this year," the committee states.
"The SFL would be adjusted based on marital status and claiming age, with a $50,000 limit for a single retiree collecting at the NRA," the group states.
With Social Security less than seven years from insolvency, at which point the law calls for a 24% across-the-board benefit cut, "Social Security now pays the wealthiest couples roughly $100,000 in annual benefits," CRFB writes.
While a "tiny fraction" of couples receive such generous benefits in the near term, "six-figure benefits will become increasingly common over time," the group argues.
"Such high benefits are currently only available to a small fraction of retirees — those who both earned at least the Social Security taxable maximum (currently $184,500) for at least 35 years and collect benefits" after NRA, the committee writes. "Yet $100,000 benefits will become increasingly common as Social Security's benefit formula leads benefits to grow over time."
The Six Figure Limit would place a cap on Social Security benefits "so that no couple collecting at the NRA (headed to 67) can claim retirement benefits greater than $100,000 per year," according to the group's paper.
The $100,000 SFL would be adjusted based on marital status and collection age.
"A single person collecting at the NRA would face a $50,000 limit," the paper states. "A couple in which both spouses began collecting benefits at age 70 would face a $124,000 limit, reflecting the 24% delayed retirement credit. A couple with both spouses collecting at age 62 would face a $70,000 limit, reflecting the 30% early retirement actuarial reduction. Different claiming ages would result in a blended limit."
The Six Figure Limit, according to the group, would target "those with the very highest lifetime incomes who are generally the wealthiest Americans. By 2060, two- to three-fifths of the savings from the SFL would come from those in the top 10% of the income spectrum. Little to none would come from the bottom half."
A 'Trojan Horse'
Nancy Altman, president of Social Security Works, called the CRFB plan "a Trojan horse."
The Six Figure Limit "goal is to erode middle class benefits over time, and turn Social Security into a flat, subsistence-level benefit, unrelated to earnings," Altman told ThinkAdvisor in an email. "Very few couples currently get a combined $100,000 in benefits. However, because this proposal uses chained CPI to calculate inflation or worse, outright freezes the maximum benefit for twenty or thirty years, it would affect more and more people over time."
According to the committee's plan, "in 25 years, the $50,000 maximum benefit for individuals and $100,000 for couples would be 30% lower in real dollar terms, so in today's dollars, they would be only $35,000 and $70,000 respectively," Altman said. "In 50 years, they would be cut by more than half — equal to just $24,500 and $49,000 respectively."
The plan "would hit younger workers hardest — the opposite of the generational equity it claims to promote," Altman added.
CRFB's proposal" is based on the fallacy that Social Security should be viewed as a welfare program," Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, said in another email.
'Means-Testing' Social Security
"It is, in fact, social insurance," Richtman said. "Workers pay into the program and receive payments to replace income upon retirement, disability, or the death of a family breadwinner.. .. Saying that no one earning over $100,000 per year (which, these days, hardly is a lavish income) needs Social Security is like saying that no one earning over $100K needs homeowners' insurance. It's nonsensical."
Capping benefits, Richtman continued, "basically is 'means-testing' Social Security. This would grossly distort the program that has worked successfully for 90 years to provide Americans with basic financial security. Not to mention — means testing to the extent that it would save the program significant money could mean reducing benefits for people earning as little as $50,000 per year — cutting deep into the heart of the middle class."
On the other hand, Richtman added, "adjusting the payroll wage cap (currently set at $184,500 per year) would correct for the growing wealth inequality which has increasingly deprived the system of much-needed revenue. Public opinion polling shows that majorities of Americans across party lines far prefer this equitable fix to the draconian solutions advocated by financial elites and right-leaning think tanks."
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