Note: Although I practice primarily in Social Security law, none of the following will directly or indirectly benefit me.
The Social Security problem is rapidly reaching a point where a negative impact on the economy will occur. To that end, now is the time to take action before the economy suffers. The facts/figures regarding the health and funding of the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds comes from the Social Security Trustees Report.
A few important pieces of data to keep in mind:
1) The OSADI is solvent through 2034. This is not the important date however.
2) The OSADI will begin to redeem Trust Fund Assets from the general treasury in 2019. This is the important date.
3) The amount of the 75 year actuarial deficit for OSADI and Disability (where I practice) is 2.68{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of payroll tax. Rather than looking at dollars and cents this is a better metric to use since payroll tax is where the trust is funded and where any future changes will take place.
4) The 75 year actuarial deficit is slightly misleading since the deficit rises from present to 2038, then declines slightly to 2050, then begins to rise again until the end of the period. This means that a short term solution that solves the problem 2034-2038 actually solves the problem to 2050. In other words, it’s possible to kick the can down the road if the 2019-2038 problem can be adequately addressed.
5) Payroll tax receipts for 2014 were 775,969 million.
When looking at solving the solution, raising the retirement age again isn’t a good option. The age is already 67 years old for the vast majority of the working population. With full retirement so near the end of life for workers, it’s likely to cause a spike in early retirement filings. Raising the age more defeats the purpose of the program.
Also, if possible, the economic impact of fixing the problem needs to be either 1) as low as possible if involuntary or 2) a voluntary action on the part of workers. Now, you may be asking what good does it do if workers choose to take steps that help Social Security, but harm the economy? Economic prudence by households often hurts the economy. If I decide to pay off debt, that prevents me from spending the money on consumer goods. If I decide to increase my emergency fund from 2 months to the advised 6 months consumer goods spending suffers. Other things such as investing in the stock market have a similar effect, though are partially offset by the increased health of the companies whose stock is purchased.
With that having been said, here are some actionable ideas that Congress can address to prevent the upcoming 2019 economic harm.
1) If an individual claims self employment in support of the earned income credit but had no FICA withholdings have the IRS reduce the earned income credit by the amount of FICA that would have been paid on the self employment and distribute to the appropriate agencies. While some legitimate self employed taxpayers will be hurt, there’s a significant amount of fraud with the EIC. The fraud won’t be eliminated, but some of the fraudulent payments will be recaptured. No option is going to be perfect, but this is a narrowly tailored option.
How much will this capture? No one knows for sure, but let’s use the amount of payments made in error as a proxy. The Treasury Inspector General for Tax Administration states that $11.6 billion and $13.6 billion in improper payments were made. Split the difference and multiply by 12.4{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} and that’s 1.56 billion (or 156 million – a 0.02 increase in payroll tax) a year. It’s penny ante, but it’s a start. Plus is recaptures monies paid out via fraud which is reason enough to take this action.
2) Withhold FICA from unemployment. Although unemployment is considered unearned income it is allowed because of earned income (no prior employment means no eligibility for unemployment.) 43 billion in unemployment was paid in 2012. With a 12.4{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} FICA rate that’s 5 billion. It’s a small amount in the grand scheme of things, but every bit helps. The running total is now 6.56 billion a year. ( 0.08 increase in payroll tax.)
3) Allow individuals whose retirement age has been pushed back to 67 to pay an extra 2{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} in payroll tax to return to age 65 full retirement age. Now we’re cooking with grease. Participation won’t be 100{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}. However, we don’t need to have 100{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} participation since the goal is to a) prevent OSADI from having to redeem from the general treasury and b) cover the shortfall until 2038 which pushes the problem to 2050.
4) For that matter, give the option to workers to pay an additional 3{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} on top of the 2{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} so their full retirement age is now 62 the early retirement age. Sure, this will cause a spike in filings as workers take advantage of the new retirement age. However, by and large this spike will occur in the 2038-2050 period when the trust fund is improving.
Maybe with all of the above we still don’t get the problem solved. We have, however, kicked the can down the road a significant amount. What’s important is delaying the date the trust fund has to start redeeming assets from the general treasury. I don’t know what the payroll tax actuarial deficit value is for 2034. However, the above steps pushes the insolvency date back a significant amount if Social Security can get participation with 3 and 4 above.
Workers pay into Social Security based on earnings of up to $117,000. People who earn more than that don’t pay Social Security payroll taxes on that amount or have it factored into their retirement benefit. The cap covers about 83 percent of all earnings. If the tax cap were gradually increased over five years until it covers 90 percent of all earnings (a $230,000 tax cap) it would reduce Social Security’s funding shortfall by 29 percent, NASI found. This change would result in the top 6 percent of earners paying higher taxes and getting bigger payments in retirement.
The tax cap could also be gradually eliminated over 10 years. This change would result in the top 6 percent of earners paying Social Security taxes on all of their earnings, instead of only a portion of them, and getting higher benefit payments in retirement. Eliminating the payroll tax cap would reduce 74 percent of Social Security’s shortfall. This change is supported by most Americans, with 80 percent of survey respondents favoring gradually eliminating the taxable earnings cap, including 76 percent of people with family incomes of over $100,000.
earnings up to $117,000.http://money.usnews.com/money/blogs/planning-to-retire/2014/11/14/5-potential-social-security-fixes
And while we are fixing the funding for social security, let’s get rid of the unfair WEP.
Last week, two members of Congress, Representative Kevin Brady of Texas and Representative Richard Neal of Massachusetts, introduced H.R. 5697, the Equal Treatment of Public Servants Act. The bill, if passed, would repeal the Social Security Windfall Elimination Provision (WEP), and replace it with a more fair formula helping those who have been impacted by the WEP and those who will be in the future.
In a press release dated November 13, Representative Brady stated, “Our goal for many years has been to end the unfair WEP and provide equal treatment to all workers in Social Security, including our teachers, firefighters, police and other public servants who have contributed into Social Security.”
Members of the Texas Retired Teachers Association (TRTA) have advocated for many years that Congress repeal the WEP, and TRTA Executive Director Tim Lee was invited last summer to Washington, D.C. by Congressman Brady to discuss the bill and share his thoughts about how it impacts hundreds of thousands of retired public educators in Texas and throughout the nation.
http://trta.org:8888/legislation/legislative-updates/federal-legislation-to-repeal-windfall-elimination-provision-wep-introduced/?
Now is the time to fix social security and eliminate the WEP.
I don’t disagree with your math, but I do disagree with the premise. Essentially you asking the public to give more money to our government for a program they have already mismanaged. Why do you have faith that they will not mismanage the additional money in the future?
Additionally this program was never meant to be the sole source of income in retirement (a concept which is relatively new in itself). Unfortunately our society has developed a dependence mentality and the government is expected to take care of everyone.
I would much rather tell everyone, “our elected officials have screwed you” and for everyone under 55 your Social Security benefit will be reduced. Start saving some money because you need to be more concerned about your well being than the government is.
Eliminating the cap certainly would go a significant way towards pushing the insolvency date back. However, it also is a compulsory action that will have near term economic harm as both the employee and employer are hit with the tax increase.
In the end, that may be a necessary component in fixing the problem. Before compulsory action it’s wiser to see how much can be saved by eliminating fraud and encouraging voluntary increased participation in the system. That way we have a clear picture of how much painful course correction must take place, and have acted to minimize the degree of pain that is inflicted.
I agree that the windfall hurts those who are unable to participate in the system and that revisions need to be made. However, the bigger picture is one where adding stress to the system isn’t going to be helpful for the individual claimants unless it’s coupled with some measure that brings revenue into the system since the overall economic harm will erode the benefit the claimant receives. One place where it hurts the most is the lack of access to disability. Those who participate in alternative retirement systems don’t have enough quarters of coverage for disability, but are ineligible for Supplemental Security Income because of the assets available. Every year I have obviously disabled individuals seek my help who aren’t eligible. That’s a pain you never can put to rest.
Equally as bad is the group of people who are disabled and lose their medical coverage because they have won their case, but the waiting period for Medicare hasn’t run and the disability award makes them ineligible for CHICP assistance and Obamacare is too expensive and the deductible and stop loss so high that the policy is worthless. Having to tell a person I can win your case, but how are you going to pay for your dialysis when we win isn’t a conversation that should ever have to take place. This aspect needs to be addressed before the old age and survivors aspects of the windfall elimination provisions are addressed.
Single payer in some form is the only common sense solution to the health care crisis in this country. May be bad for disability lawyers, big pharma and insurance companies but so what. Raising the cap on SS to 250K and repealing the WEP are common sense solutions. It is also the right thing to do..
It would have no effect on disability lawyers.
As to the rest of your statement I will let the results of Obamacare speak for themselves.
sure you will Greg, that’s why you mentioned it. in an SS post
Generally I won’t engage trolls, but will make an exception this time since your post is dangerous as SS disability is already subject to too much misinformation as is. Disability cases are won or lost on medical records. If a single payer system were to increase access to health care there would be benefit, not detriment, to my practice.
However, between the CHICP programs mandated by state law and Obamacare a single payer system isn’t going to have a significant impact in terms of access. It might change who the health care provider is. A differencein provider isn’t going to have an appreciable impact.
Also, you’re the only one discussing a single payer system, which is off topic to the post. The post deals with the OASDI trust fund. Please stay on topic.
Please get your acronyms correct. Is it OASDI or OSADI? Also Greg, let’s not call names shall we? When you post about something as controversial as funding SS, you are inviting comments, non? You are correct when you say “Maybe with all of the above we still don’t get the problem solved. We have, however, kicked the can down the road a significant amount.” Not solving the problem by kicking the can down the road doesn’t seem like a reasonable solution. Raising the cap is a better way. Sure, it will cost a little more for rich folks but as the bible asks in Genesis 4:9: Am I not my brother’s keeper?
Okay typo Nazi. I am not going to engage with you anymore. Feel free to continue to troll. You will have to find another person to engage with.
I always amazes me when liberals, who’s heads would actually explode if an elected official actually tried to use biblical principles to cover, start quoting the Bible to support one of their wrong headed ideas.
Just so we’re clear here Loren, when the bible tells you that you are your brother’s keeper, it means that YOU are your brothers keeper. YOU need to cough it up, dig deep and help your brother.
The Bible never says, anywhere, old or new testament, that you need to use the government to forcibly take money from one person so that you can then give it to some other person. Please don’t try to assuage your own shriveled heart by trying to feel good about stealing from one person to benefit another.
Fat, You are your brother’s keeper; you pay taxes. Greg’s actionable ideas; 1) get rid of fraud. Obamacare attempts to do this. 2)withhold FICA from unemployment. Really? The pittance that this would generate is not close to a solution and doesn’t seem very fair. 3)Allow individuals whose retirement age has been pushed back to 67 to pay an extra 2{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} in payroll tax to return to age 65 full retirement age. OK but this is voluntary and will not generate enough money even if participation becomes mandatory. 4)…give the option to workers to pay an additional 3{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} on top of the 2{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} so their full retirement age is now 62 the early retirement age. The notion of buying down the age at which a worker can get full SS actually seems to have merit but does not fix the problem of funding SS. Raising the cap on SS is the right way to go.
Loren:
1. I am my brothers keeper to the extent that I personally work to help the people around me – physically, spiritually and mentally.
2. Taking money by force from somebody (i.e. making him/her pay taxes) does not make me their keeper.
3. The government is a necessary evil – NOT my brother.
4. Forcing people to give money to the government, which then redistributes that money (in an absurdly inefficient fashion) to the people it considers to be needy is not Christian. . . it’s not even intelligent. And thinking that you’re complying with a biblical mandate by letting the government do what you need to do personally – is simply pathetic.
I pay my taxes because I’m required to do so. I help my fellow man because I want to do so. Trying to equate the two simply proves that you’re clueless.
Fat, so you wouldn’t pay SS taxes unless you were required to do so. Got it. That does nothing to solve the funding problem. But at least I know you are a Christian. Big woo
@lorensmith – The only reason anyone pays taxes is because they are mandatory. Everyone has the opportunity to pay additional money to the government when they file their annual income taxes, but no one does.
What exactly is your point?
Civic club fees that are voluntary are paid by quite a few people. While it is not a tax it is something for the common good of the community.
Some people are selfish and let others take care of them.
Loren, NOBODY would pay taxes if they weren’t forced to. If you believe otherwise, then you’re even more foolish than I thought.
Furthermore, if you actually read my comments and all you could see is that I don’t like paying taxes, then there’s no point in trying to even have a conversation. Feel free to continue on in your delusions.
Schools in many communities in our early history were paid by donations as they were for the common good.
Would you donate any part of your paycheck for defense? for police?
Most civic associations have required fees, not voluntary. If you do not pay them, they will first put a lien on your home and then foreclose after charging outrageous legal fees. What might start out as a $200 or $700 debt one year will soon cost you your home if you don’t pay.
Fred, Of course SS is not intended to be the sole source of funding in retirement, however it is for many seniors. I am not sure what you mean by mismanaged. SS seems to work fairly well. Seems to me some of the wall street financial institutions were really mismanaged. You said, “I would much rather tell everyone, “our elected officials have screwed you” and for everyone under 55 your Social Security benefit will be reduced. Start saving some money because you need to be more concerned about your well being than the government is.” OK let’s say everyone under 55 puts their money in a typical retirement program such as a 401K. Then they turn 65 and they are just getting ready to enjoy their golden years when suddenly WHAM the stock market goes to 1000. What then? Let Grandma eat out of the dumpster behind Burger King? At least with SS there is backing by the Fed Govt. I trust the government more than some companies to provide long term financial security. Now, as I have said in response to Greg’s post, raising the cap on SS will solve the problem, not just kick the can down the road like he admits his four actionable ideas will do.. What say you?
Fat, So you wouldn’t pay taxes for police protection, sewage and water, roads, schools, basic health care or military unless forced to? We are different. I don’t mind paying taxes for these things, in fact I feel it is my civic duty to do so. I do mind paying taxes on wasteful military spending: https://warisboring.com/heres-how-the-military-wasted-your-money-in-2014-6837137e3dc2#.ecdb88d35, big agra subsidies http://www.economist.com/news/united-states/21643191-crop-prices-fall-farmers-grow-subsidies-instead-milking-taxpayers, other stuff http://www.cnsnews.com/mrctv-blog/curtis-kalin/top-20-worst-ways-government-wasted-your-tax-dollars.
Greg’s post is about funding SS. I have given you my solution. WHAT IS YOUR SOLUTION?
Loren,
Since you asked, here is what I believe that the Federal government should be responsible for:
1. The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
2: To borrow Money on the credit of the United States;
3: To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
4: To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;
5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
6: To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;
7: To establish Post Offices and post Roads;
8: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;
9: To constitute Tribunals inferior to the supreme Court;
10: To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations;
11: To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;
12: To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;
13: To provide and maintain a Navy;
14: To make Rules for the Government and Regulation of the land and naval Forces;
15: To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;
16: To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;
17: To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;—And
18: To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.
If it ain’t in the list then Congress has NO business doing it – regardless of what the feckless rubes on the Supreme Court might say.
Police? Local and State except in specific cases where a Federal law is involved. (By the way, one of the more egregious sins of our contemporary Federal government is the way it has created a myriad of armed law enforcement agencies out of bureaucratic organizations. )
Sewage, water, waste disposal and other municipal services? These are municipal issues – the Fed has no business whatsoever getting involved.
School? Once again, a local issue from which the federal government should stay the he!! away.
Military? Of course we need taxes to pay for the Military. I concur that they are often wasteful. But, honestly the Government is wasteful. Period! To single out the Military as the only source of waste is silly and dishonest.
As for Social Security: as is was originally sold and envisioned, it wasn’t a totally bad thing. But in todays world, it ‘s unworkable. When FDR proposed Social Security the average lifespan was 62. Today it’s 82. Social security was never designed to support people for 20 or more years, and, if you do the math, it quickly becomes apparent that it’s a ponzi pyramid. The problem is that our population is aging and there are fewer and fewer workers to support those who retire. Anybody who says differently is either lying or horribly confused.
As for removing upper limits on what people have to contribute – are you also going to raise upper limits on what they can receive? If so then OK, if not, then you are de-facto admitting that social security is simply one more tax where the Government simply takes money from one person and gives it to someone else. I believe that is unhealthy for a society and immoral as a practice. (And please don’t try to equate simply giving someone money with paying an employee. The two are not the same and trying to claim that they are makes you look silly.)
“As for removing upper limits on what people have to contribute – are you also going to raise upper limits on what they can receive? If so then OK,” Of course, glad we agree on this solution to funding SS going forward.