Closing Out the Week: A Look at Options to Address Insolvency - pgpf.org; AMAC
Whether it’s 2034, 2032, or 2031, the end of the road for Social Security’s asset reserves — the trust fund balances — is rapidly approaching. Along with that, of course, is a projected catastrophe in the form of a substantial benefit cut that would submerge millions of vulnerable seniors below the federal poverty line. Estimates on the magnitude of this benefit reduction range from 19% to 28%, depending on which news source you read.
The forecasts are draconian, perhaps, but we need to remember they are based on the possibility that Congress will not act to fix a problem that has been on the table for decades. Most reasonable folks do not expect this to be the case — an expectation based on the remedial action taken in response to a remarkably similar situation in the 1982-1983 period. In fact, Congress has a wealth of suggestions and ideas to draw on to craft an insolvency solution that would stabilize Social Security over the 75-year actuarial forecast horizon. The problem becomes one of selecting a package of adjustments that will be the most acceptable to the largest slice of the affected population (think, voters).
Three Ideas Gaining Recognition
One organization active in seeking solutions to Social Security’s funding problems is the Committee for a Responsible Federal Budget (CRFB). Through its Trust Fund Solutions Initiative, CRFB has advanced three significant proposals that Congress might do well to examine in the search for a solution to the insolvency problem. The Peter G. Peterson Foundation highlighted these proposals yesterday in a post on its website, which you can access here.
Another Pathway to Solving the Problem
The CRFB proposals are indeed ideas that need careful analysis. As noted earlier, many others are being placed in the mix, including the “Social Security Guarantee” advanced by the Association of Mature American Citizens (AMAC, Inc.). AMAC believes Social Security must be preserved and modernized to meet the demands of 21st-century economics, and suggests this can be achieved without payroll tax increases through relatively minor program modifications, including changes to the cost-of-living adjustment (COLA) process and modifications to the formulas for calculating initial benefits for higher-income beneficiaries. Changes to the age for maximizing benefits are included in AMAC’s position, along with (1) an increase in the thresholds where benefits are subject to income tax; (2) indexing of these thresholds annually to account for inflation; (3) changing the taxable maximum formula to address the unintended loss of revenue; (4) improving survivor benefits, (5) eliminating the reduction in benefits for those choosing to work before full retirement age; and (6) improving savings tools for future retirees, including a savings account that builds estate value. 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. See AMAC’s proposal for Social Security reform here.