This past Thursday, it was announced that a Congressman from Texas, Rep. Sam Johnson (R-Tx) put forward legislation that would bring about deep cuts in Social Security.
The summary of the legislation can be found in this article from Yahoo! Finance.
As the article states, the proposed bill, would…
“slashes benefits, adds means testing, and would raise the retirement age from 67 to 69.”
Naturally, this is drawing a lot of criticism and fire coming right after the election season and just 5 weeks before the inauguration of President-elect Trump. And the worry for millions of Americans now, as well as my generation which will be collecting 15-20 years from now, is what will be left for if these cuts go through.
So I wanted to see if I could cut through the noise and get to the heart of the matter, while presenting both of the argument as well as my own opinions…
First, let’s talk about what the proposal from Rep. Johnson actually says. I know that there is a lot of hysteria in the analysis of what he said (if you want to be typical biased and skewered article out there like this one in the L.A. Times click here) but this is what his actual press release says…
For years I’ve talked about the need to fix Social Security so that our children and grandchildren can count on it to be there for them just like it’s there for today’s seniors and individuals with disabilities,” said Johnson. “My commonsense plan is the start of a fact-based conversation about how we do just that. I urge my colleagues to also put pen to paper and offer their ideas about how they would save Social Security for generations to come. Americans want, need, and deserve for us to finally come up with a solution to saving this important program.”
The Social Security Reform Act of 2016 ensures Social Security will be there when Americans need it by:
• Modernizing how benefits are calculated to increase benefits for lower income workers while slowing the growth of benefits for higher income workers.
• Gradually updating the full retirement age at which workers can claim benefits. The new retirement age better reflects Americans’ longer life expectancy while maintaining the age for early retirement.
• Ensures benefits keep up with changes in the economy by using a more accurate measure of inflation for the annual Cost-of-Living-Adjustment.
• Protecting the most vulnerable Americans by increasing benefits for lower-income earners and raising the minimum benefit for those who earned less over the course of long careers.
• Promoting flexibility and choice for workers by eliminating the Retirement Earnings Test for everyone. This allows workers to receive benefits—without a penalty—while they are working, or fully delay retirement and wait to receive benefits. For those who delay claiming benefits, they can receive increases in a partial lump sum or add it all to their monthly check.
• Encouraging saving for retirement by phasing out Social Security’s tax on benefits for workers who continue to receive income after they retire or stop working due to a disability.
• Targeting benefits for those most in need by limiting the size of benefits for spouses and children of high-income earners.
• Treating all workers fairly when their Social Security benefits are calculated by using the same, proportional formula that looks at all of an individual’s earnings over the course of his or her career.
Now, as you read this, remember two things…
• Being he is a Republican; every Democrat will hate this (because it came from a Republican). And the opposite holds true. Every Republican will love it because it came from a Republican.
• This is the Congressman’s own spin on the issue, and has not be subjected to analysis by the Congressional Budget Office, which provides non-partisan analysis (supposedly) for the Congress to evaluate legislation.
So, how do you cut through the noise and determine how this will affect…
Know The Facts About Social Security
First and foremost, understand that Social Security IS living on borrowed time as it exists right now. One of the best explanations I have ever seen comes from a Yahoo! Finance article on the subject written a few years ago…
The reality of the situation is that there needs A MAJOR CHANGE in Social Security for the program to survive long term.
Changes Have Come Before
In the 1980’s Republicans and Democrats came together in the form of President Reagan and Speaker of the House Tip O’Neill to sign legislation to reform and save Social Security.
As this article in U.S. News and World report states,
It offered a compromise that has had lasting effects on Social Security politics and policies. Some of the proposals were less than ideal; one that was ultimately enacted into law raised the regressive payroll tax, which hit working- and middle-class Americans harder than wealthier citizens. Nonetheless, the 1983 agreement did succeed in extending the trust fund’s solvency for a couple of generations by raising the retirement age to 67 from 65 (to be phased in by 2027); imposing a six-month delay in the cost-of-living adjustment; and requiring government employees to pay into Social Security for the first time.
Changes Will Come Again, And Must Come From Both Sides of the Aisle
As the Yahoo! Finance article and video showed, Social Security is not a Republican or Democratic problem…it is a demographics problem. We originally had 11 people paying into Social Security for every person receiving benefits. Within the next 10 years we will have 2.3 people paying in for everyone paying benefits.
Simply put that is not sustainable.
And this is the biggest reason that Social Security reforms must take. And yes, many of you may claim that the government has raided the Social Security Trust Fund in the past (for an explanation of that click here but we are in the midst of the greatest demographic cliff in history as 76,000,000 baby boomers start to retire.
That’s the problem.
And while reform is needed, reform inevitably needs to come from both sides of the aisle. That means that things like raising the Social Security age and going to HAVE to happen. And yet, it also means that things like the Social Security cap where you do not pay Social Security taxes on income above a certain amount (currently as I write this it is $118,000 but does get indexed upward over time) are going to have to happen.
What we need are politicians with courage to look us in the eye and tell us the way things actually are. The problem with that is so few politicians do this that we kick “kicking the can” down the road until the problems become too great for us.
We are 10 years away from this being the case with Social Security.