GOP proposals would create flat Social Security benefit, up retirement age

While Republicans have been accused of rubbing their hands at the chance to drive the stake into the heart of Social Security, they say they want the opposite – that they want to save it with reforms that would preserve and return it to its antipoverty roots, along with helping reduce federal spending.

This argument has erupted again as Republicans poised to take control of the House of Representatives are saying they expect to use the federal debt ceiling as a tool to pry some reforms from Democrats as the debt rises to the $3.4 trillion limit in mid-2023. Democrats have said they want to raise the limit before this Congress gavels out its last vote on Dec. 15, but they have not scheduled a discussion or a vote on the issue.

The Republican plan will apparently take center stage next year, so it makes sense to look at the plan and the state of those programs.

How bad is it?

It has been reported that Social Security funds will run out in 2035. Although it is true that the Old Age and Survivors Insurance (OASI) trust fund is expected to be depleted by then, that is only a portion of the payment. Payroll taxes would pay 76% of benefits at that point, so retirees could still expect that portion. The disability trust fund, however, is healthier and expected to sustain throughout the 75-year projection window to 2096, and pay full benefits until then, according to the latest Social Security Administration annual report.

According to the latest annual report, the pandemic actually helped the programs because of a stronger than expected recovery from the 2020 recession.  The disability program also has had lower number of applications, according to the report. (Although a recent Washington Post report showed that the state-administered system is barely functioning in many parts of the country, artificially suppressing the number of new enrollments.)

Although it is true that Americans are living longer, that is not the main reason for the shortage, according to the Social Security Administration. It’s because the birth rate dropped from three to two per woman. The shortfall after 2035 is stable, according to SSA, and an adjustment to taxes or benefits would be able to offset the drop to sustain benefits. Without reform, continuing taxes would be enough to pay 76% of the benefit.

The Social Security Board of Trustees said the problem could be fixed with an increase in payroll tax up from the current 12.4% to 14.4%, or an immediate 13% reduction in benefits. Those changes or a combination would allow full benefit payment for the 75-year projection period. Others have proposed raising or removing the wage cap on Social Security taxes, currently set at $147,000.

GOP: More reform, less tax

Republicans generally do not favor the tax increase option to salvage Social Security.

Minority Leader Kevin McCarthy, R-Calif., before the midterm election released Commitment to America, a list of goals that included a line to “save and strengthen Social Security and Medicare.”

The Republicans’ Jobs & The Economy Task Force has more detail in a position paper, which focuses on reducing the national debt. The document targets mandatory spending, such as entitlements, accounting for 76% of the federal budget and therefore a main culprit for the debt.

“The structural gap between the revenues pledged to meet entitlement commitments in Social Security and healthcare programs continues to widen as benefits are expanded and Americans live longer while still drawing these benefits at relatively earlier ages,” according to the paper.

Besides saying that Congress must be prepared to make reforms to extend the solvency of entitlement programs, the position paper states that Republicans would reform how the Congressional Budget Office evaluates the programs to consider impacts beyond its usual 10-year window.

“This will include accounting for the compounding of savings over time and the real cost of carrying debt or delaying spending or taxes,” according to the paper, which did not specify the effect of doing so.

These tenets were formed under McCarthy’s leadership, but his position has been contested by a conservative contingency. The Republican Study Committee, a conservative caucus that includes about 75% of the House GOP, has specific proposals in a suggested budget for 2022.

The committee states that its budget would make Social Security permanently solvent by:

• Increasing the minimum benefit up to 40% of average wages for those that worked 40 years or more.
• Raising the full retirement age to track life expectancy. That plan would raise retirement age three months per year through 2040. Then the new age requirement to receive full Social Security benefits for people born after 1978 would be 70.
• Reducing initial benefits and auxiliary benefits for high-income earners and increasing it for low-income earners to eventually equalize the benefit to a flat amount.

The Heritage Foundation, an influential conservative think tank, has proposed a blueprint that expands on the idea of shifting Social Security to a flat benefit. Many of the foundation’s ideas were echoed in the Republican Study Committee’s plans.

The foundation proposes gradually replacing Social Security with a universal, anti-poverty benefit, increasing the benefit for low-income earners and reducing it for high-earners until it is a flat amount. The foundation makes the case that Social Security now pays higher-income people more, even though it was supposed to be an antipoverty program. (Social Security functions as an annuity, in which the more people pay in during their working life, the more they get when they annuitize.)

The foundation claims that the plan would make Social Security solvent and reduce the payroll tax by about 20% within the 75-year horizon – and expand the economy.

The group offers a larger plan to reform Social Security Disability Insurance. The 16-point plan would also convert SSDI to a flat, antipoverty program. It would:

• Eliminate the “grid” qualifications of age, education and work experience.
• Update the official list of jobs available in the national economy.
• Allow use of social media in eligibility determinations (to catch someone doing something like jet-skiing).
• Eliminate the reconsideration stage (and instead go right to a judge).
• End direct payment to SSDI representatives.
• Apply judicial code of conduct to administrative judges.
• Conduct reviews of outlier judges (identifying the ones who tend to approve more than average).
• Reduce target caseloads for judges.
• Establish a flat anti-poverty benefit.
• End double-dipping (those who also get unemployment benefits).
• Limit retroactive benefits to six months, instead of 12 months.
• Offer an optional, private disability insurance (DI) alternative.
• Include unearned income in the measure of substantial gainful activity.
• Establish time-limited, needs-based benefits.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].