In the wake of bills to increase the federal minimum wage, propose a 70 percent income tax on certain income brackets, and eliminate work requirements for welfare recipients, one of the first bills proposed by Democrats in the 116th Congress was to expand the nearly bankrupt New Deal-era Social Security program.
The Social Security 2100 Act, introduced by House and Senate Democrats, would implement the first major expansion of Social Security since 1972. In 1983, Congress raised taxes and the eligibility age for Social Security to address the program’s financial insolvency.
The bill proposes cutting federal income taxes on Social Security benefits for roughly 12 million middle-income recipients and raising taxes on everyone else. The payroll tax rate would increase incrementally from 12.4 to 14.8 percent over a 24-year-period. Benefits would be increased by roughly 2 percent, and both the annual cost-of-living adjustment and the minimum benefit amount would be increased.
The bill’s principle author, Rep. John B. Larson, D-Conn., and chairman of the Ways and Means Subcommittee on Social Security, claims expanding Social Security “would enhance and expand the nation’s most successful insurance program, which touches the lives of every American.”
The New York Times suggests the proposal represents a “sea change” of policy that will make “gradual changes to keep it solvent for the rest of the century.”
Data produced by nonpartisan organizations reveals however that not only has the program been insolvent for decades, it is ripe with waste, fraud and abuse.
According to the 2015 annual Trustees’ Report, the 75-year unfunded obligation of the Social Security OASI Trust Fund was $9.43 trillion. And the trustees projected in 2015 that the Social Security OASI program would be insolvent by 2035.
“This means that the program is expected to have only enough revenue from payroll taxes, interest on the Trust Fund balance, and repayment of borrowed Trust Fund dollars to pay out scheduled benefits until 2035,” Romina Boccia, director at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, said.
In 2016, the trustees estimated that benefits would need to be immediately cut by 16.4 percent in order to make the program solvent.
Additionally, reports from several nonprofit organizations reveal that illegal immigrants cost taxpayers an estimated $116 billion annually, including those who receive Social Security benefits.
And the Social Security Administration stated in 2016 that “all improper payments,” including fraudulent payments to the deceased, were estimated to cost roughly $3 billion per year. The Committee for a Responsible Budget notes that even if the fraudulent payments were reduced, they would only affect 0.4 percent of the cost and extend the program’s solvency by about three months.
No amount of money could fix Social Security, Chris Conover, adjunct scholar at the American Enterprise Institute and author of “The American Health Economy Illustrated,” argues. He writes in Forbes Magazine, “even a wealth tax of 100 percent would be insufficient to pay for the unfunded promises that America’s politicians have already made for America’s two biggest entitlements: Medicare and Social Security.”
Conover said that as of Jan. 1, 2018, the total future resources needed to pay for the unfunded liabilities of the two largest social welfare programs financed by the federal government, Medicare and Social Security, equates to $97.8 trillion in present value terms.
Unfunded liabilities represent the cumulative difference between expected spending on a program and the projected dedicated revenues to fund it. The present monetary value of a future stream of payments, according to Medicare Trustees, “is the lump-sum amount that, if invested today, together with interest earnings would be just enough to meet each of the payments as it fell due. At the time of the last payment, the invested fund would be exactly zero.”
Conover suggests that the U.S. government would need additional cash-in-hand resources now to fully fund owed Medicare and Social Security liabilities. The only way to fund the at least $97.8 trillion, Conover says, would be “through increased borrowing, higher taxes, reduced program spending, or some combination.”
Raising taxes is the wrong approach, the libertarian think tank Reason advocates.
“This is exactly the wrong time to increase the amount of taxes that go into and the amount of benefits that come out of a demographically challenged program such as Social Security” Nick Gillespie, editor-at-large of Reason, told Watchdog.org.
“The moment when seniors are among the richest group of people in America and have a huge amount of assets to live off is exactly the moment that entitlements based on age should be ended and replaced with a needs-based, temporary social safety net, regardless of age.”
“Payroll taxes are absolutely the most-regressive taxes out there and this expansion will only take more money from younger, relatively poor workers and give it to older, relatively rich people,” Gillespie adds. “Everyone who can pay for his or her retirement should do so (and will do so willingly if freed from the 15 percent bite of current payroll taxes); we should use tax dollars only to help those who need it.”
Even if taxes were raised and the program were solvent, the way it is constructed guarantees that young male workers will receive a negative rate of return from Social Security, an analysis produced by the Heritage Foundation reveals.
Younger workers, including low-wage earners, “would receive at least three times greater rates of return from private savings than Social Security will provide,” the report, which advocates privatizing the program, states.
“Allowing workers to more easily save for their own needs today, and in retirement, instead of taxing them heavily to provide them with public benefits would enable workers to accrue higher retirement incomes in addition to greater take-home pay during their working years,” Rachel Greszler, Research Fellow in Economics, Budget and Entitlements at the Heritage Foundation, asserts.
This article was first published by Watchdog.org.