How Correcting a Simple 1972 Mistake Can Make Social Security Solvent - AMAC & American Institute for Economic Research
Dave Rose, a Senior Research Fellow at the American Institute for Economic Research, describes how a costly mistake was made in 1972 in the procedure for implementing Cost of Living Adjustments indexing of benefits to protect beneficiaries from the effects of inflation. Wage indexing was selected over price indexing. According to the Social Security Administration’s 2023 Trustee Report, adjusting the initial benefit calculation with a price index rather than a wage index removes about 80 percent of the unfunded liability gap over the next 75 years if instituted in 2029. The results are even more dramatic if started sooner. Alex Durante said this in a recent Tax Foundation report,
Had price indexing [rather than wage indexing] been implemented under Hsiao’s proposal, Social Security would have run surpluses every year from 1982 to 2023, except for 2021. There would have been temporary shortfalls starting in 2024, but by 2044, Social Security would have been running surpluses again. Surpluses in Social Security could permit a reduction in the tax rate or allow some of the revenue raised from payroll taxes to support Medicare, which is also running large deficits.
Rose’s full piece can be read here, and he notes this could be a winning issue for either presidential candidate in 2024.
As an example of the leading thoughts on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized. This can be achieved without tax increases by slight modifications to cost of living adjustments and payments to high income beneficiaries plus gradually increasing the full (but not early) retirement age. AMAC Action, AMAC’s advocacy arm, supports an increase in the threshold where benefits are taxed and then indexing for inflation, and calls for eliminating the reduction in people’s benefits for those choosing to work before full retirement age. AMAC is resolute in its mission that Social Security be preserved for current and successive generations and has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade.