The Future of Social Security: The Reform Proposals Congress Is Considering
By: Ryan Muller, Legislative Analyst, Williams & Jensen PLLC
The House Budget Committee recently held a hearing to discuss the merits of a fiscal commission to help Congress address the national debt. Social Security featured prominently in these discussions, with many Members of the Committee speaking about the importance of addressing Social Security as part of larger budgetary reforms. Former Director of the Office of Management and Budget and Secretary of Defense Leon Panetta was among the witnesses testifying before the Committee, and his message on Social Security and the broader budget crisis was clear: “For goodness’ sake, do something.”
While this Congress, and many before it, has done little to stabilize Social Security in the face of looming solvency issues, momentum to act is growing as Members of Congress are crossing the aisle in meaningful ways to introduce bipartisan legislation. Consider, for example, a proposal by Senators Bernie Moreno (R-OH) and Elizabeth Warren (D-MA), two Senators who, by their own admission, have very little in common, and yet both recognize the urgency of the situation. Their proposal would remove the Social Security payroll tax cap, presenting this argument as one about fundamental fairness. As they write in their op-ed, “Why should a middle-class nurse pay a larger share of her paycheck than a wealthy corporate lawyer? This is doubly unfair in an economy in which top earners’ wages, over time, have pulled far ahead of those of the average worker.” Estimates find that removing the cap on FICA taxes would increase revenues by over $3 trillion over the next decade, closing about half of the long-term shortfall and extending the Trust Fund’s solvency for a while longer.
While Senators Moreno and Warren point to this fact as justification for removing the cap, others point to it for precisely the opposite reason. The Tax Policy Center, a think tank associated with the Urban Institute and the Brookings Institution, points out that even this massive tax increase will only temporarily prevent insolvency. The Center even notes that this is a rosy analysis, assuming this tax increase will not create disincentives to work or report earnings. The Center also argues that this severs Social Security’s status as an earned benefit, which it notes is core to Social Security’s “sacred public standing.”
Representative John Larson (D-CT) — who currently serves as the Ranking Member of the Committee on Ways and Means Social Security Subcommittee but will not be returning to Congress after a narrow loss in this year’s primary election—has offered his own comprehensive proposal, the Social Security 2100 Act (H.R.9519). His bill, while increasing benefits, strengthens the Trust Fund by applying the FICA tax to earnings above $400,000, creating a “donut hole” that protects those just above the current cap from a tax increase while targeting the highest earners. It also extends the tax to net investment income above $400,000. Representative Larson has introduced this bill in previous Congresses as well. While the most recent version was not scored, the Social Security Administration’s Office of the Chief Actuary estimated that the bill would extend the Trust Fund’s depletion date until 2066 when using data from the 2023 Trust Fund Report. However, this approach would be subject to many of the same criticisms leveled against the Moreno-Warren proposal.
Senators Bill Cassidy (R-LA) and Tim Kaine (D-VA) have offered their own solutions, including their “Big Idea” to create a parallel trust fund, seeded by the U.S. Treasury with approximately $1.5 trillion, that would grow in tandem with the stock market, taking advantage of growth in the American economy rather than continuing the current policy of investing in relatively low-yield government bonds. While this approach could fulfill its goal and may even provide Social Security with extra funds at the end of the growth period, there is a real risk that the market underperforms and American taxpayers end up paying for the well-intentioned but ultimately unsuccessful experiment. In addition, this is a long-term solution that does not fully address what to do in the short term when the Trust Fund runs dry in 2032. Serious questions must be asked about what to do in the interim if this proposal is to proceed.
In an attempt to force its own hand, Congress has considered empowering an independent commission or advisory board to offer legislative proposals that would ensure solvency. The Senate Finance Committee recently held a hearing on the merits of such an approach. Some argued that this is a vital first step that will get the ball rolling, while others alleged that this approach does nothing but give political cover to Members of Congress who want to avoid explaining hard votes to their constituents. Several stated that this is an excuse to avoid addressing the issues through regular order, though Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, argued that this is not the case.
No legislation is perfect; all will require trade-offs. This requires Members of Congress to reach across the aisle and cast difficult votes. But, as former Secretary Panetta suggested at the Budget Committee hearing, this presents an opportunity for Congressional leadership to step in and provide the political cover for their members.
Congress has plenty of options before it already, and more are sure to come. The desire to act is there, as is the sense of urgency. Should Democrats reclaim the House, likely Ways and Means Committee Chairman Richard Neal (D-MA) has indicated that he is ready to take on this issue head-on, noting that addressing this issue “would be a big priority for us, not later—sooner.”
And acting sooner rather than later is now all but a necessity. The most recent Trustees’ Report projected that the insolvency date has continued to creep nearer, now standing in late 2032. This is no longer an issue for the next in line—the class of Senators elected this November will have to confront this head-on during their tenure on Capitol Hill.
As Congress continues to debate this vital issue, please be assured that NCPERS will closely monitor this area of public policy and will apprise its members of any significant developments.