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A Pop Quiz on How to Save Social Security

This column is about a birthday present for Social Security. It is the present that Social Security wants more than anything in the world.  And it’s the present Republicans have the hardest time figuring out how to give–money.

The reason Social Security wants money is not because it is 80 years old and forgot to prepare for its old age.   It’s because of demographics over which it had no control. More and more baby boomers are attaining retirement age and qualifying for Social Security payments and Social Security is finding itself having to support a lot more people than it anticipated when it began. Furthermore, there are fewer workers paying Social Security taxes and more people are getting benefits.  The result is that by 2033 the Social Security trust fund which is now covering shortfalls will be depleted and its income from taxes paid by the reduced number of workers in the work force will enable it to pay no more than $.77 on each dollar it pays out. There is nothing future retirees can do to solve the problem but there are things Congress can do. Here are some of the solutions being considered by Congress. Readers may come up with others.  The question you will be asked to answer at the conclusion of this piece is what is the best solution.  Here are the options:

(a) Cut the benefits for present and future beneficiaries by 17%.  People who rely on Social Security as their only source of income could adjust to this cut by lowering their spending by 17%.  People with large retirement accounts or other wealth would not even notice the cut.  That makes it an attractive solution for all but those who consider Social Security an important part of their retirement planning.    One analysis says that this proposal would reduce the shortfall by 100%, funding the program for the next 75 years.

(b) Raise the retirement age.  Instead of permitting people to begin collecting benefits at 67, as is the case for everyone born after 1960, increase the retirement age to age 68 for five years beginning in 2023 and then raise it to age 70 for the period between 2023 and 2069.  As with the preceding proposal, the people this affects the most are those who cannot afford to quit working until they qualify for Social Security.  Those whose retirement is not tied to when their Social Security payments begin won’t notice the change.  That would reduce the shortfall by only 20%, not much of a birthday present for Social Security.

(c) Change the cost-of-living adjustments.  Instead of increasing monthly payments by corresponding changes to the consumer price index, use a different way of calculating the increase that would increase more slowly.  This would very likely only affect the monthly payments that retirees get by a very few dollars and will only be noticed by those without outside savings or sources of income. Those people will probably notice if their checks are reduced by a few dollars but they can adjust by lowering their standard of living ever so slightly.  That would reduce the shortfall by 20%.

(d) Institute means testing for recipients of Social Security.  Means testing is a way of reducing benefits for those who do not rely on Social Security as their sole source of support and would be seen by those who do as leveling the playing field since it affects those seen as better off. An arbitrary figure could be selected with the provision that anyone whose outside income is above a specified amount would lose a percentage of his or her Social Security benefits and someone with an outside income of an even greater amount would lose all his/her benefits.  Whereas the other proposals described above are unpopular primarily with those who rely on monthly payments for security, this proposal is disliked by rich and poor alike.  According to one report 64 per cent of Republicans and 60 percent of Democrats opposed this idea.  Why those who usually are in favor of helping the poor oppose it is unclear.

(d) Eliminate the tax cap.  Today all wage earners pay Social Security taxes on 12.4% of their wages up to $118,500 of earned income. Here is how that works.  Jamie Dimon is the president of JPMorgan Chase.  He earned approximately $20 million in 2014.  He paid $7347 in Social Security taxes in 2015 and his employer paid the same amount.  A worker who only earns $118,500 will pay exactly the same amount as Mr. Dimon.  If there were no cap and all of Mr. Dimon’s compensation were subject to the Social Security tax, he would have paid $1,240,000 into the Social Security Trust Fund in 2015.  The bank would have paid the same amount. Those and similar payments like them would make the trust fund solvent forever.

There are, of course, proposals in addition to those set out above that might give Social Security a happy birthday and readers will come up with their own.  Here, however, is the quiz:  if you were a member of Congress and had to vote on one of the preceding ways of helping to restore solvency to the Social Security Trust Fund, which one would you choose?  If you selected (d) you should continue doing whatever it was you were doing before you started reading this column since there is no future for you in politics.  If you voted for one of the other solutions you should consider a career in Congress.  You have what it takes to serve.

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