I wanted to take note of financier Richard Pozen’s Wall Street Journal op-ed in which he outlines a plan for remedying the problems with the Social Security Trust Fund with four components:
- Slow benefit growth for at least the highest quarter of earners
- Increase revenues by raising FICA max
- Gradually increase the retirement age
- Change the formula for computing the COLA for Social Security to the chained consumer price index for all urban consumers
I have one reservation about his plan. Not all jobs are created equal and the reality is that physical work is significantly harder to continue past age 65 than, say, a desk job. Remedying that will probably be considerably more complex and difficult to enforce than it sounds at first glance, requiring an additional classification analogous but not identical to Social Security Disability. Or maintain early Social Security retirement age while gradually increasing full retirement age.
Other than that, it seems to me a reasonable, workable plan but I call your attention to it more for where it is appearing than for its contents. The Wall Street Journal editorial page has traditionally opposed higher taxes and been skeptical of entitlement spending. That it should publish a proposal combining higher payroll taxes with reductions in the growth of benefits is noteworthy. Whether that signals a growing willingness to compromise or merely recognition of an approaching crisis remains to be seen. The Old-Age and Survivors Insurance Trust Fund is projected to exhaust its reserves in 2032. Congress has rather little time left to act.
The precedent here is the Reagan-era change to Social Security. In 1983 the two parties could agree that Social Security’s financing problem required a negotiated solution in which both sides accepted politically uncomfortable provisions. The critical difference today is that there is less overlap in views between the two parties and hence greater difficulty in compromising.
The easiest way to resolve the physical work dilemma is to just make it a wage cut off as most of those jobs are lower paying. That’s a had sell I think. Otherwise plan looks OK. Can they find 5 or 6 R senators to get over the filibuster and will Trump sign it? Hard to see overcoming a veto. Maybe they call it the “Trump saves Social Security” bill so he will sign?
Steve
If one views income and expenditures from the viewpoint of a unified budget; as long as we are willing to have the general fund subsidize the social security fund to the same level as today on a cash flow basis (currently about ~250 billion dollars per year); the changes required are quite manageable. I analyzed with chatgpt and it says raising the FICA max would cover most of it.
I don’t think the Federal government could change the receipt / expenditures of social security so it becomes “solvent” or even cash flow neutral in one go without causing a deep recession. The deficit per year is 0.8% of GDP today and projected to be 1.5% of GDP in 2032. My goal would be to keep it from exceeding at 0.8 – 1.5% of GDP and slowly lower it back to towards 0%.
I’m not too concerned with physical work.
The way things are going, a lot of physical work is going to be roboticized in the next 2 decades and people will be moved to the job of supervising the robots (which could be done remotely from a desk).
Note Amazon has not expanded the size of its warehouse employees in 5 years even as the number of warehouses and number of packages it handles has increased substanially.