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  • The Time is Now for Social Security Reform

    Today, the Congressional Budget Office (CBO) released its Social Security Policy Options report, which highlights some of the proposals made by policymakers and legislators to restore the Social Security program to long-term sustainability.

    Social Security, which provides living assistance to retired workers and those with disabilities, is in need of immediate reform. Social Security ran its first deficits since 1983 this year, and though economic recovery is expected to raise revenues higher than outlays once again for a few years, the program will be running permanent deficits from 2016 on. At that point, the government’s ability to pay promised benefits will depend on the Social Security Trust Fund, which will be exhausted in 2037. This, however, assumes that the funds in the trust fund are actually there—which they aren’t. Congress spent the money that was supposed to be saved and replaced it with government bonds that can be repaid only when the government collects still more taxes.

    So what can we do to fix this dilemma? CBO lays out several possibilities, though their list is by no means exhaustive. To keep Social Security’s benefits promises the same as they are now would require an increase in the Social Security payroll tax or raising or eliminating the maximum on the amount of income which can be taxed. Unfortunately, simply raising taxes, even just for the “wealthy,” will not solve the long-term problems, since for now, the tax hikes would collect more than Social Security needs to pay today’s benefits, and the extra money would go to buy more government bonds (while Congress spends the extra money) that will eventually need to be paid by collecting still more taxes in the future. And this “solution” does not even take into consideration the economic effects of such a decision. However, if Congress fails to act and allows the Social Security situation to become dire, tax hikes will be the only available option, since that is the only possible change that can be enacted immediately. Any changes to benefit structure must be planned for well in advance to give those who expected the current benefit time adequate time to adjust.

    Possible changes to the benefit structure of Social Security include reducing initial benefits, increasing benefits for low earners, and raising the eligibility age. The last of these should be part of any reform package, as Americans are living longer now than they ever have before. In addition, any changes to the benefit structure of Social Security should focus benefits more heavily on those who need them the most. Lastly, reforming Social Security is important, but of equal importance is the need to address the entire retirement savings system at large in order to allow Americans to better prepare for retirement on their own.

    Posted in Economics [slideshow_deploy]

    8 Responses to The Time is Now for Social Security Reform

    1. Frank Pollack says:

      Social Security is provided to much more than those who earned it. While the system penalizes retirees on a Post Office retirement from drawing half of what their spouse draws, and grants SSI payments for any new citizen who never worked here. Many return to their overseas original homes and live. Closing injustices like these and gradually raising the retirement will have a dramatic effect on the balance sheet for Social Security. If my wife would have been a stay at home Mom, she could draw on half of my monthly allotment. The inequities in the WEP program also affect retiring teachers. The biggest impact to the financial strain in addition to the aforementioned, is to remove any and all caps on income.

      While our situation drastically impacts our retirement, the WEP program took approximately $750/month from our planning.

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    3. mary, california says:

      Frank,

      Your wife should never have been entitled to spousal benefits anyway.

      It is despicable that our government takes taxes from hard workers earning below $106,000 a year at the same rate, then distributes benefits according to lifestyle choices rather than contribution levels.

      Spouses who never paid into the program should not receive a dime.

    4. Bonnie Cediel, Berke says:

      Retiring teachers in 15 States are really hit with the inequities designed by those who fiddled with Social Security in the early 80's to make it more solvent. Many women, like me, who lived very cheaply–one family car, shopping at garage sales, etc.–in order to stay home to take care of children, while my husband worked and contributed to Social Security for 20 years–have lost all spousal benefits because of the Government Pension Offset. I became a teacher for 16 years after my children were grown and have, therefore, earned half a teacher pension. That half a teacher pension, however, eliminates all my rights to the spousal allotment I would otherwise be paid.

      Not only is this a major disincentive to older, experienced and wise mothers to become the great teachers we need in our schools, it is a direct slam at people who believe that it is an American value to stay home and be a Cub Scout leader, a School Board member, and, mostly, an attentive parent. This Commission must find a way to eliminate the Government Pension Offset as it rebuilds this American institution. Check SocialSecurityFairness.com for more information.

    5. Bill says:

      If you simply tax all earnings above the Taxable Maximum at 6.2% (half from employer and half from employee) and then also index the Full Retirement Age to Changes in Longevity (cut benefits just enough to offset the effects of living longer), these together will solve long term solvency.

    6. Eric, VA says:

      Now may be the time to try to privatize Social Security. Let me be the one that has complete control of my retirement. Keep the Government away from my money. It is apparent they don't know how to handle it so let me give it a shot. I could roll it into my 401k and see much better returns. Oh, and that way we are not handing out more money to those who don't deserve it and never did anything to earn it.

    7. MyDogOreo, Chappaqua says:

      The wealthiest segment of the population is the senior one. The problem with Social Security seems to also be a moral one. Between Medicare and SS, seniors will be soaking up what they mostly don't need. It is unconscionable for me to take a monthly check and "free" Medicare while a young family is struggling to pay for it. No wonder young people don't want to have more than one or two children. Or any children at all (since we recently fell below replacement level).

      Let's fold Social Security into Welfare and have it provide for those in most need – no matter what their age. Also, fold Medicare into Medicaid, again, for those in most need.

      Last: if you don't need your Social Security check, cash it, and give it to a struggling young family. It will do more good than any so-called "stimulus".

    8. Concerned, - NC says:

      Lets follw the Galveston model. We need to reinstate the 'opt out' option for local municipalities or individuals. We need to SS reform asap!

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