Each year the Trustees of the Social Security and Medicare Trust funds report on the current and projected financial status of the programs. The 2020 report projects the Trust fund that pays Social Security Retirement &, Survivor benefits will deplete in 2035, at which point only 76% of promised benefits will be payable, based on recurring revenue from payroll taxes.
As an indicator of the growing sense of urgency around these issues, the Senate Republican “HEALS act” (the now stalled second round coronavirus stimulus package) had wrapped in previously drafted stand-alone legislation Mitt Romney (R-Utah) called the TRUST Act*, which would set up bi-partisan “rescue committees” to fast-track decisions to shore up Social Security and Medicare. (Time to Rescue United State Trusts Act: S. 2733/H.R. 4907)
Ideologically, Democrats have favored proposals around increasing tax revenues, while Republicans have favored gradual benefit reductions or reallocation of benefits over time. Below are four proposals, one or more of which a bi-partisan package might include.
- Adjust the Earnings cap on Payroll Taxes. Joe Biden’s Social Security reform plan, 2020 proposes a pause on earnings subject to FICA tax between the current earnings cap of $137,700 and $400,000, at which point the FICA tax would be retriggered.
- Gradually increase the payroll (FICA) tax rate from its current 12.4% to 14.8% for all workers. The tax would increase by 0.1% per year over the next 24 years (half paid by the employer, half by the employee.) Social Security 2100 Act” Rep. John Larson (D-Conn).
- Gradually extend the “Full Retirement Age” to 69 or 70.
- Modify benefit formulas to slightly increase benefits for below-average earners and slightly decrease benefits for above-average earners. Phased in over a ten-year period.
Republicans feel strongly that any legislation must take increased longevity into account. Since Social Security was incepted in 1935, the average life expectancy has increased at least 15 years, while Social Security’s Full Retirement Age has increased just two years — from age 65 to 67 (for those born 1960 or later), resulting in more and more seniors leaning on Social Security for decades, rather than a few years, as the program was initially intended.