Sam Johnson takes on Social Security Reform

exercise-seniors-3-2As Chairman of the Social Security Subcommittee of House Ways and Means, Rep. Sam Johnson (R-Tex) has introduced the “Social Security Reform Act of 2016” as a way to extend the solvency of Social Security and eliminate many provisions that are seen as unfair.  Of course, the media and people on the left are couching this bill in dire headlines such as, “How the GOP’s Social Security Plan Cuts Benefits,” (Steve Vernon, CBS News), “Are Republicans Crazy Enough to Go After Social Security?” (Jonathan Chait, NY Magazine), and “Sam Johnson Wants to Cut Your Social Security Benefits By a Third,” (Kevin Drum, Mother Jones).  Sounds pretty scary, doesn’t it?

The truth is, however, that the “scary” alternative is simply ignoring entitlements until people wake up to 21 percent benefit cuts in a few decades.  Rep. Johnson at least wants to get a real discussion going.  Even if you don’t support all of the recommendations in the Reform Act, many of them make common sense.  (Full disclosure:  Sam Johnson is my Congressional representative.)  A few highlights:

  • Eliminating the double taxation of benefits.  In the above-referenced CBS News article, Steve Vernon writes that the plan includes “tax cuts on affluent retirees,” but the fact of the matter is, the tax on Social Security benefits starts early, hitting moderate-income retirees who work, say, a part-time job while also collecting retirement benefits.  (See my piece on how this works.)
  • Raising the retirement age to 69.  There are legitimate concerns about raising the retirement age. Although folks are living longer and many are working in some capacity past the age of 65, there is a segment of the population that will have paid into Social Security all of their working lives and not live to see a penny of retirement benefits.  But this is how social insurance programs work .  Like any other insurance system, there will always be people who pay into the system and never “use” the benefits or at least use very few benefits.  This happens all the time with different types of insurance, such as auto, homeowners and medical insurance.  If we as a society want to continue to preserve this program as is, we need to accept the fact that people are going to die earlier than their eligibility age, and that helps to extend the life of the program.  It’s a simple fact.
  • Changing the benefit formula.  This is quite complicated, but in a nutshell, the benefit formula would increase benefits for the lower-wage workers while reducing them for higher-wage workers.  Also, high-income beneficiaries would not be eligible for COLA adjustments.  Incidentally, Social Security was never meant to be a full income replacement program.
  • Incentivizing work.  The plan would also eliminate the earnings test, which penalizes those who take early retirement benefits while working by reducing their benefits by 50 cents for each dollar they earn over a certain threshold.  By the way, the NCPA was instrumental in repealing the previous earnings test that penalized retirees who worked beyond their full retirement age.
  • Extending the delayed benefit credit past age 70.  This provision would allow workers to claim the delayed benefit credit up to 36 months past their full retirement age.  Also, they would have the option of taking part of their credit in the form of a lump sum.

These are just a few potential reforms that would extend the solvency of Social Security, reflect longer lifespans and allow people who wish to work longer to do so without penalty.

 

 

Comments (1)

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  1. Jack Towarnicky says:

    Simply, your Congressman’s proposed changes impact the allocation of costs and benefits – so, such a solution won’t work because you can’t gain a political consensus unless it is a proposal to “kick the can” down the road – where the majority of benefits are frontloaded and the majority of new taxes/revenues are levied on future generations.

    Instead, make the system sustainable by giving participants options (choices) on how to fill the funding/sustainability gap. A choice on how to close the funding gap should apply to current beneficiaries, workers, surviving spouses, etc. If you want more detail on how this would work, feel free to send me a note and I will pass you a summary.

    My point is that your Congressman’s sole focus should be on filling the funding gap. If he wants to “correct” deficiencies in the Social Security benefits program, those should be part of a separate proposal:
    – Want to raise benefits for lower income individuals? Call it welfare and pass it in separate legislation. They certainly didn’t “earn” a larger benefit.
    – Want to eliminate “double taxation” of benefits, or at least start indexation of the unchanged attachment point implemented in 1984? Put it in a larger tax reform proposal to reallocate burdens.
    – Want to raise retirement age? No problem if that is one of the choices for participants on how they individually want to “fill the funding gap”.
    – Want to incentivize work. Sure, removing the earnings test would make sense IF AND ONLY IF the benefit paid upon commencement prior to Social Security Normal Retirement Age (or paid commencing after SSNRA) is the actuarial equivalent of the benefit paid commencing at SSNRA.

    Social Security is not an “insurance” system, other than disability and survivor benefits – it is an old age wealth transfer system, where current taxpayers fund the benefits of old people. Such attempts to mislead people into thinking it is “insurance” is how older Americans now believe that they have paid for/funded their benefits (why proposals to change funding often fall on deaf ears, or where, Presidents like George W. Bush add $10+Trillion in new liability by expanding Medicare to include prescription drugs without asking then-current Medicare beneficiaries to shoulder even $.01 of the cost).

    Auto, homeowners and medical insurance are not the same – we are NOT in the same pool, and, more importantly, auto, homeowners and medical insurance includes no intentional, deliberate transfer of wealth through a social insurance system MANDATED by the federal government.

    Yes, preserve the system as it is, that means make the current system sustainable – NOT – make all sorts of changes.

    The Social Security benefit formula already disproportionately favors workers with minimal periods of employment, spotty wage records, etc. It is not as if they “earned” any greater benefit. That is also true with regard to Medicare Part A, Part B and Part D funding. Remember, the only provision of Social Security and Medicare that is more regressive than the taxes paid are the benefits they fund.

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