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  • Social Security Needs to Be Fixed, Says Senate Finance Minority, but How?

    Senate Finance Committee Republicans have some good advice for the Joint Select Committee on Deficit Reduction (sometimes known as the super committee): Fix Social Security now.

    As part of a 21-page comprehensive set of recommendations on issues under Finance Committee jurisdiction, the Republicans note that “Social Security reform, aimed at solvency and integrity of the program, and not for near-term deficit reduction, needs to occur as soon as possible and should not be delayed.”

    Further, the recommendations note:

    Reform of the Social Security program to ensure sustainable solvency and protection against poverty will:

    • Restore the long-term viability of the Social Security program upon which seniors, disabled workers, and dependents depend;
    • Provide younger workers with clear signals and ample time to adjust their lifetime savings plans;
    • Protect general government finances from irreversible deterioration and further future stresses;
    • Help restore our AAA credit rating;
    • Help guard against future ratings downgrades; and
    • Send useful signals to financial markets of serious action on unsustainable entitlement promises.

    As the recent 2011 trustees report showed, Social Security has entered into a time of permanent cash flow deficits, and failure to fix the system will mean that all Social Security recipients will face 22 percent across-the-board benefit cuts.

    The Finance Committee Republicans follow their general recommendation with seven specific thoughts about how to fix Social Security, most of which are quite good. For instance:

    The objectives of Social Security reform should be to ensure lasting solvency of the program over the infinite horizon and to maintain Social Security as a safety net program that protects against poverty in old age or when a worker becomes disabled.…

    Comprehensive reform of the Disability Insurance component of the Social Security system, funded by Trust Fund assets that will be depleted as early as 2016, must be a part of any overall Social Security reform effort.

    However, one of their specific recommendations is not nearly strong enough and has wording that could be interpreted as giving the Joint Committee permission to increase Social Security taxes:

    Increasing payroll taxes or lifting the taxable wage cap means higher taxes on labor and small businesses, which will slow growth in jobs and the economy. Moreover, higher payroll taxes levied on employers are ultimately borne primarily by workers in the form of lower wages and other benefits. The JSC should be mindful of those negative economic effects in any deliberations over payroll taxes. [Emphasis added.]

    The Joint Committee needs to be much more than “mindful” of the negative effects of increasing Social Security payroll taxes or increasing the taxable wage cap. It needs to just say no to them both.

    As the Finance Committee Republicans noted, increasing Social Security payroll taxes would slow economic and employment growth. The Senate Finance Committee Republicans should have told the Joint Committee in no uncertain terms to avoid increasing Social Security taxes.

    Further, the recommendations fail to include any concrete recommendations about how this reform is to be made other than some vague hinting around. Fixing Social Security requires some specific steps such as increasing the retirement age to reflect the longevity changes that have already taken place.

    In addition, the way that annual COLA changes are made should be improved by switching to the Chained CPI index and changing the benefit formula to focus scarce resources on those who need them the most by reducing benefits for upper-income retirees.

    Without hard decisions like these specific steps, Social Security’s financial problems will continue to blight the retirement security of today’s workers.

    Posted in Featured [slideshow_deploy]

    7 Responses to Social Security Needs to Be Fixed, Says Senate Finance Minority, but How?

    1. David Brunjes says:

      I personally like the idea of eliminating the maximum contribution. If someone gets a windfall $30million payout, tax the whole $30million. He will never miss it, and it will go a long way towards providing the additional revenue needed to sustain social security. I do not like the idea of raising the retirement age on those who have already started paying in. How can you justify changing "the contract" on someone who has just started paying in when you won't even consider changing it for someone who has been paying in for 30 years? Changing the contract is changing the contract.
      David

    2. Chris says:

      I have come to realize the FICA taxes might be used as leverage to encourage US companies to hire more locally than overseas. Assume the US wage remained flat but the funding obligation continued to grow (very realistic expectation), it would take ever increasing rates for the trusts to break even. If forward looking tax rates were issued as guidance of future tax costs US companies must bear if the wage and employee base does not increase, companies would have to contemplate tax increases every time they considered a layoff or hired overseas. Some will argue that prospective tax rate increase will only drive them overseas faster, but it only works to their advantage if they intend on becoming a non-US company because the same amount of taxes will be collected.

      (to be continued)

    3. Bobbie says:

      alot of the problems are corruptions of the process. What were qualifications at one time has opened up less stringent qualifications (that's okay you didn't pay…) including more recipients that aren't elderly! Exceptions upon exceptions because of DEMOGRAPHICS?? Programs designed by the American government is extreme and unethical to allow considerations to demographics! We're all people, human beings and all need the same thing to survive. If what's available isn't to a persons liking or isn't good enough, THEN DON'T TAKE IT!

      Whoever pays IN are the only ENTITLED!

    4. Chris says:

      (cont)

      Currently, companies just shove these payroll related restructuring costs back into the system for the system to resolve (or burden shifting to other companies) when they perform massive layoffs. If tax rates were allowed to float to balance the trust funds annually, they might layoff people (potentially fewer) but see their overall payroll tax costs go up because the cost of the programs did not go down resulting in a rate increase. Now companies would face the same problem the system faces. Also, key decision makers would be impacting her/his future individual tax obligations and that might cause them to reconsider some of their decisions or the extent of their actions. The method for keeping personal and company withholding taxes lower is for hiring more and more American workers. An obvious statement, but the current FICA withholding policy does not encourage such behavior by virtue of lowering the withholding rates for increase hiring. The system needs to be automatically balance for SS & Medicare.

    5. Chris says:

      (cont)

      Secondly, if the trusts are set with tax rates that balance the fund annually, every taxpayer affected by a rate increase would know the only way to change the amount of tax withheld from their check was to vote officials into office that had the courage to reduce benefits today. These so called solutions 10, 20, or 40 years into the future are for the birds. They do nothing for the current deficits nor do they encourage the right behavior of taxpayers or voters. Everyone would have to evaluate the world around them and decide if the wanted to send someone to Washington to increase or decrease the programs thereby increasing or decreasing their personal withholding tax obligation. Immediate results verses this political can kicking exercise.

      With respect to taxes, I am not convinced refusing to have tax increase is a solution. It might be about building a structure that aligns tax policy with operational goals of the fund.

    6. Chris says:

      (cont)

      Regardless, the trust concept should be killed in favor of matching cash inflows and outflows. The trust is effectively a shell game. When more spending is desired, those debts are no longer considered "real" and the proponents of more spending drop the national debt from 100% of GDP to 70% of GDP. With $2.6 trillion in SSA trust assets that should cover over three years of SSA payments. Yet the Administration indicates during the debt debate that seniors might not get their checks further validating that the trust has no assets and it is not really a trust. I guess it is a good thing Wall Street did not put this SSA Trust together because there might be public outcry from the progressives (lots of regulations at a minimum) if it had put this type of "Trust" into the market place.

      (end)

    7. dan says:

      eliminate the cap. thats all. its not rocket science. i pay on 100% of my earnings. shouldnt everybody. if someone making over 106,000 has a burden having to pay on 100%, send them to me and i will show them how easy it is, ive been doing it my whole life. its very easy. if they make twice as much as me, it should be twice as aesy to get buy then me. eliminate the cap it is so unfair.

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