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3 Social Security Fixes and a Conservative Twist on ‘Universal’ Benefits

3 Social Security Fixes and a Conservative Twist on ‘Universal’ Benefits

Social Security isn’t going anywhere, but it could face massive cuts in the next 15 years that have some experts devising plans to revitalize the country’s most important social program.

The Social Security Administration has stated that the trust fund used by the program will run a shortfall starting in 2035, when about 80% of current benefits will be payable. Fixing this deficit issue is going to require some kind of combination of higher taxes, lower benefits or Congress will have to shift funds to the program elsewhere.

Politicians from both sides of the aisle have been crafting proposals. Some Democrats in the race to face President Donald Trump in the 2020 election want to increase benefits and funding through a wealth tax, while Republican Utah Sen. Mitt Romney is trying to create a task force that will be charged with crafting a fix.

That’s not stopping some researchers from developing their own approach to the issue at hand. Here are three expert’s ideas to fix Social Security:

Preserving Current Social Security Benefits

Alicia Munnell is the director of Boston College’s lauded Center for Retirement Research, and she believes Social Security needs to be kept the way it is, but that’s going to require some funding fixes.

“I am a big fan of Social Security,” Munnell said, according to CNBC. “It’s the backbone of the retirement system, and it’s valuable to everybody. It’s valuable to low-income people, and it’s valuable to middle-income people.”

But Munnell doesn’t want to see benefits cut or a raise in the full retirement age, which means she thinks the answer is higher taxes. Her views fall mostly in line with a proposal from Democrats that is making the rounds in Congress called the Social Security 2100 Act.

Rep. John Larson, D-Conn., the author of the bill, is pushing for a higher payroll tax that would increase from 12.4% to 14.8% by 2043. While this would potentially hurt earners that are eventually going to rely on Social Security, it would be paired with an additional tax on higher earners.

Currently, Social Security taxes wages up to $132,900, but the new bill would also hit earnings of $400,000 or more, which would allow benefits to increase by 2%.

“I like it. I’m not saying you have to do every single thing precisely the way it has been formulated,” Munnell said. “It’s basically a proposal that is designed to maintain the current level of benefits with a few enhancements.”

Restarting Social Security From Scratch

Social Security fixes COLALaurence Kotlikoff, a Boston University economics professor, has a more extreme approach. He wants to start from scratch.

“The biggest problem is $43 trillion in unfunded red ink,” Kotlikoff said concerning Social Security’s long-term unfunded liability. “And then the other major problem is the system is outmoded, it’s inefficient, it’s unfair and it’s sexist in many ways.”

And he has an economic fix that he created along with Columbia University professor Jeffrey Sachs.

Their plan would freeze current benefits so retirees would keep receiving payments. Anyone currently working would just receive what they have accrued in the system.

After that, the program would create personal security accounts for workers that would require 8% of wages to be contributed, and half of those contributed wages would go into a spouse’s account if the worker was married.

There would be a government match on contributions from poor, disabled or unemployed workers, which would ensure enough benefits for those individuals who can’t contribute as much. This is where it gets interesting, per CNBC:

The money in the personal savings accounts would be invested in the global market weighted index funds. But since those investments would be made through a single government entity, the investments would come with zero costs.

By the time workers reach 57, their accounts would at least equal what they’ve put in, adjusted for inflation, Kotlikoff said. Between the ages of 57 and 67, those assets would be gradually sold off into inflation indexed bonds.

The benefits would be paid based on age cohorts. So if more people live or die within a certain age group, that would affect how their benefit payments rise or fall.

“It would adjust through time, and it wouldn’t leave any liability to another generation,” Kotlikoff explained. “So the idea of stealing from generation to generation, which is what we have been doing, would end.”

Switching to a Universal Social Security Benefit

Rachel Greszler and conservative think tank Heritage Foundation took parts of the Social Security 2100 Act into consideration when crafting their own universal benefit plan.

Greszler, a research fellow at the think tank, argues a universal plan would flatten benefits out, providing more for people who are below the poverty line.

“If you slowly move toward a flat universal benefit over time, you can reduce the size of the program and make it more targeted,” Greszler said.

A recent study from Boston College found Social Security is currently benefiting richer individuals that can delay benefits more than less fortunate individuals who have to take benefits as early as age 62.

But a universal plan would have to be very gradual, with anyone currently in their 50s and 60s likely receiving what they are already owed.

“It would take decades to achieve that,” Greszler said.

And for anyone scared by the word “universal,” here’s the kicker: The plan would actually come with a Social Security tax cut. Currently, taxpayers are subject to a 12.4% Social Security levy, but Greszler said that could be reduced to 10%, which would mean an extra $2,400 pocketed by someone making around $50,000.

Workers receiving this cut would have to put those extra funds to good use, like a different retirement savings account, but Gretszler thinks it beats just handing over money to the government.

“Your future benefits are only as good as Congress’ willingness to extract extra money from taxpayers in the future,” Greszler said.

And keeping more money means Americans would want to work more, which would keep the economic wheel turning.

“Then the economy is larger, and that just cycles in the right direction,” Greszler said.

Editor’s note: There are some good ideas floating around to fix Social Security. Which one do you like the most, or is there another one you think would work even better? Share you thoughts below.


• You can find all of the latest and most important news about Social Security here on Money and Markets.

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