topic Re: A solution to keep Social Security solvent in Social Security

A solution to keep Social Security solvent

BrianL306623 — Fri, 01 Nov 2024 15:50:05 GMT

We recently received an email from AARP requesting us to email Congress for the continued funding of Social Security. While this is a worthwhile endeavor, it does not provide a solution and who knows how many folks will actually send the message. So, I am advocating for AARP to be more proactive in how they and their members reach out to Congress. AARP should have some political clout and therefore should use it to our advantage. The unions would be another avenue to pursue!

There is a report authored by the Congressional Research Service titled, “Social Security: Raising or Eliminating the Taxable Earnings Base”. This report (https://crsreports.congress.gov/product/pdf/rl/rl32896) was updated on December 22, 2021. The conclusion of this report is as follows:

“Raising or eliminating the cap on wages that are subject to taxes could reduce the long-range deficit in the Social Security trust funds. For example, the Social Security Administration's Office of the Chief Actuary (OCACT) estimates that phasing in an increase in the taxable maximum (for both contributions and benefits bases) to cover 90% of covered earnings over the next decade would eliminate nearly 20% of the long-range shortfall in Social Security. OCACT's estimates also show that if all earnings were subject to the payroll tax, but the current-law base was retained for benefit calculations, the Social Security trust funds would remain solvent for about 35 years. However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.”

In 2022, the maximum Social Security tax - formally called the contribution and benefit base, and commonly referred to as the taxable earnings base or the taxable maximum - was $147,000. It is currently $168,600 and going to $176,100 in 2025. Since 2009, the annual salary for Congressional members is $174,000 and for the Speaker of the House: $223,500, the Majority Leader: $193,400, and the Minority Leader: $193,400. This means even Congress has not been paying their fair share into Social Security.

I am but one person and AARP is millions of people. Will everyone please get this word out?

Re: A solution to keep Social Security solvent

Tonster521 — Sun, 03 Nov 2024 17:27:30 GMT

@BrianL306623 From a fiscal perspective, the SS Program pays more benefits than revenue received. That is a formula for failure. You probably are aware of the proverbial statement, " If you fail to plan, you plan to fail". So, the SS Program needs to increase revenue, cut benefits, or some combination of both. In addition to your suggestion, I believe closing the S Corp tax loophole has great value for increasing FICA revenue especially Medicare taxes as well as Federal Income Taxes. FYI, many businesses (of various sizes) file taxes as a S Corp to avoid or reduce (or possibly evade) paying taxes for both Federal and FICA. Money is paid out as a distribution (i.e., dividend,etc.) in lieu of a salary/earnings which does not increase their federal tax bracket and is not subject to FICA taxes. You do not need to be a huge corporation such as Apple, Amazon, etc. You can be the owner of a small business such as a hot dog stand, financial service (insurance/investments/real estate), law firm, etc.

There are other inequities in the SS Program that are favorable to highly compensated folks. One can look at the PIA formula. Should higher compensation folks who will qualify for SS Benefits at the third Bend Point be contributing at a higher percentage (greater than 6.2%)? In other words, use a percentage similar to the Withholding Percentages for Federal Income Taxes. Currently, higher compensation folks receive three calculations in the PIA formula for 6.2% FICA tax. Most other folks only receive two calculations in the PIA formula for 6.2% FICA tax. From a mathematical perspective, the higher compensated folks receive a great deal especially when SS Spousal Benefits are added to the calculation.

Re: A solution to keep Social Security solvent

Tonster521 — Sun, 03 Nov 2024 17:32:10 GMT

Re: A solution to keep Social Security solvent

BrianL306623 — Sun, 03 Nov 2024 18:10:37 GMT

All good points and information. We have to start somewhere and eliminating the tax cap is the low lying fruit!

Re: A solution to keep Social Security solvent

Tonster521 — Tue, 05 Nov 2024 11:25:17 GMT

@BrianL306623 It is a start. However, I believe there will be a negative reaction if the SS Program does not include the higher taxable earnings base in the PIA formula. Will the higher earnings be included in the Average Indexed Monthly Earnings (AIME)? If so, the SS Program will be paying additional (greater) benefits including SS Spousal Benefits (if eligible). And, there may be more than one SS Spousal Benefit payable if the high earner had multiple marriages. Using a high earner who starts SS Benefits at Full Retirement Age in 2024 with the required 35 years of maximum earnings and has only one spouse who is also at FRA, their SS Benefit would be $3,822 and $1,911 per month, respectively. If the spouse did not work and contribute for 40 quarters or 10 years, the Spousal Benefit ($1,911 or $22,932/year) is just about equivalent to the SS Benefit of the average worker who contributed for 35 years or more.Granted, not every person will qualify for the SS Benefits that I used in the above example. However, it should be clear that revisions to the PIA formula and contribution requirements need to be reviewed as well. Perhaps there should be "means testing" to limit SS Benefits. The SS Program which is a social insurance benefit was initially created to keep people above the poverty level after one is no longer able to work. It is not a wealth transfer program to benefit high earners.

Another issue that has not been addressed by Congress is the declining SS base. We have been hovering around a 62% Labor Participation Rate for years https://fred.stlouisfed.org/series/CIVPART . We were at higher rates in the early 2000's (i.e., approx. 66% to 67%) which helped to continue increasing the SS Trust funds. You can review the various stats that the Feds disclose in the link that I provided and will learn that there is only about 168 million in the civilian work force. There are about 268 million eligible based on age (16 yo 64). There are about 100 million not working. However, some are disabled or there are other reasons. Of that number, there are about 42 million that are not disabled and could be working. I believe they are called "discouraged" and not counted in any unemployment stats. This should be a priority for Congress. In other words, create policies and laws that provide employment for our country which will help solve depleting the SS Trusts.

Re: A solution to keep Social Security solvent

BrianL306623 — Tue, 05 Nov 2024 12:19:32 GMT

Again, all good points. I like the idea of means testing although you & I know it would be a hard fight, yet one that can be won if Congress really wants folks to 'pay their fair share'! The employment roll is discouraging, and I am not one to pay someone for doing nothing when they are able to work, maybe not willing, yet ABLE! Your analysis is what is needed to get something passed. My whole point in my post was to hopefully get AARP to put forth a concerted effort because they have more backers than me. I would also like to see the unions get behind it because recent contract negotiations have eliminated pension plans. Therefore, SS is even more important to aging workers. Thanks for your posts.

Re: A solution to keep Social Security solvent

GailL1 — Thu, 07 Nov 2024 20:28:32 GMT

@BrianL306623

Do you know why the taxable maximum exist in the 1st place? Because it is directly linked to the calculation of benefits - thus by limiting the taxable maximum, the maximum benefit is also limited. Social Security calls this annual limit the contribution and benefit base. As you said, this amount is also commonly referred to as the taxable maximum. For earnings in 2025, this base is $176,100.

That figure rises every year when there is a COLA - This figure is also firmly situated within what is known as the “middle class”especially if one lives in a high cost of living place in the US.

CNBC.com 09/20/2024 - Middle Class Incomes by State

Only extending the solvency of the program for 35 years is not the long range goal - 75 years is more like it AND the last sentence says a lot about why this change isn’t such a good idea if you want to keep the system as is and not just a welfare.system.

From your same CRS link:

However, having different bases for contributions and benefits would weaken the traditional link between the taxes workers pay into the system and the benefits they receive.”

The SS Actuaries also realize that IF an employer has to suddenly increase the amount of matching contributions, especially if it is a lot, this could detrimentally affect employment or hiring of a range of employees to try to make up for some of their increased cost of employment.

The SS Actuaries call this the “behaviorial” reaction by employer - they employers could also offer benefits or other compensation in lieu of some wage increases.

Employees, especially in the higher cost levels, could also be reclassified depending upon their function in the company to be utilized more on a contract basis than salary - then the increase cost of matching contributions would be on the employees dime as a self-employed person. OR if they decided they could Incorporate, there would be NO contributions since their pay would be then a division of profits rather than a W-2 pay check.

How many people do you think are W-2 employees in these real high pay areas? Like at $ 400,000 and above? Would the system get more in contributions this way than say, increasing the rate of contributions for everybody incrementally?

There have been tons of proposals put forth to fix the system. There have been numerous Administration appointed commissions to investigate and suggest proposals. This has been going on since the early 2000’s. Yet, here we are with no fix in store -

For your reading enjoyment - ALL the proposals to change the System with SS Actuarial analysis of each one. And of course, many of them want to extend or add benefits as well as making [some] people pay in more. So pick one, pick several.

SSA.gov Proposals to Change Social Security

You think this is an easy solution just because it sounds easy to do and will affect those to whom many think can afford it, so to speak.

This limit increases normally every year when there is any amount of inflation. So it will probably get higher and higher every year without any action at all. But the benefit calculations will stay the same unless we change that computation - but do we really want to do that - turn it into an even more progressive system than it already is at present.

This does nothing to fix our employment / contribution problems - it takes far less people to do jobs nowadays because of technology and that will probably continue. And we haven’t figured out a way to tax technology for the Social Security system. So (1) person is now paying into the system because they run some machine to do a job rather than the (10) that use to be needed to do the job.

Then we have the problem of people living longer and they draw their benefits for a longer period. I think in the beginning the program was planned just to pay benefits for a few years before the person died. Now it it 25, 30 or even more years of drawing benefits AND we have not changed the contribution rate for this longer draw rate.

Go back to the drawing board or the system will fix itself come 2035 or so when the law stipulate that benefits are cut automatically if benefits cannot be paid out of contributions.

SSA.gov - Social Security Trust Fund Data by year 1957 - 2023

People need to learn how to save - A time when we can no longer work because of old age doesn’t just creep up on us overnight. Social Security was never meant to be a total retirement program but it is for many. SAD !

Re: A solution to keep Social Security solvent

BrianL306623 — Fri, 08 Nov 2024 00:47:36 GMT

So, where do we go from here? You make good points, and I agree 35 years is not enough, yet we have to start somewhere. No, I do not think it is an easy solution, nor do I think it is perfect, yet I think it is a start! My point is that the Congressional Research Service has put something forward that can begin to 'fix' the SS issue, yet it is not being acted on! You may throw as many darts as you want, yet there has to be a beginning. So, how do we get Congress do get off their collective duffs and do something? My hope is the collective pressure from groups like AARP, the unions across the country, etc., to put their weight on Congress to get it done. Of course, the solution also has to take into consideration of your points, those of @Tonster521, and other minds to make the solution sustainable. I am not a pie in the sky person, I am practical and a journey of a thousand miles begins with one step. Not my quote! 😉

Re: A solution to keep Social Security solvent

GailL1 — Fri, 08 Nov 2024 18:40:37 GMT

@BrianL306623

The CRS reports don’t put anything forward - ALL they do is explain the current process or proposals to Congress - When a proposal is made, the authors(s) request an analysis by the Social Security Acrtuaries and if their proposal doesn’t meet their expectations, they can go back to the drawing board to tweak their proposal and the numbers therein.

Several of these proposals involve raising the taxable maximum but not all at once. Some of them say they will raise the tax max on workers that make more than $ 250.000 or over $ 400,000 (since the current administration had promised not to raise taxes on those making less than $ 400,000). The proposals would leave the current way of raising the tax max in place and just let that figure catch up to the whatever other figure - $ 250,000 or $ 400,000 - when that catch up happens sometimes in the future, then in essence, all W2 income would be taxed for contributions.

But then, unless the benefits formula is changed, this will not accomplish too much because those who are then contributing more would be getting a bigger benefit. So the solution there is to add another (or more than one) bend point to the benefits formula to the already progressive formula.

THE ONLY way that any CURRENT beneficiaries will have their benefits affected is if we DO NOTHING - then the law will take affect sometimes in the future (about 2035 or there about) when insolvency happens - meaning when we can no longer pay benefits out of contributions and other Trust Fund income methods. Those cuts as presently presented based on the numbers would be about a 20%+/_ reduction in benefits.

We can make changes to the contribution %, we can change the full retirement age (FRA)incrementally from 67 to 70 for those who are say, now in their 30’s or 40’s - that would also get rid of the delayed retirement credits which we pay out now at a very nice % for those who don’t file for benefits until 70. Those would no longer apply if we raised the FRA to 70.

We can modify benefits for those who won’t retire for the next 20 - 30 years. We could tax those who get benefits but yet pay no contributions like non-working spouses. We could modify the Family Max benefit amount or cut out some of the Divorced Spouses benefits especially if there are several of them and no dependents involved.

Our Social Security and Medicare systems have become explosive political subjects. That’s why whatever solution has to be a REAL bipartisan effort. I am not sure we are there yet.

We have people that have not prepared themselves for the time in their life they can no longer work. I am sure there are many reasons why they didn’t or couldn’t. Things over time just get more and more expensive and if we have a real inflationary period like we did in 2022 - 2023, then those daily living cost hit them very hard because they have nothing to fall back on - THIS HAS TO CHANGE. We have to stress the importance of retirement savings to those especially younger than 55.

We definitely don’t need to add anything to benefits before we get hold of the financial problems we have with the SS system now. Many of those proposals being put forth are exactly that - added benefits.

People who are now within the systems of Social Security and/or Medicare who make a good retirement income from various sources already pay more back into these systems - They pay MORE in taxes on their benefits, they pay MORE for their Medicare Part B and Part D premiums (IRMAA surcharges). They may pay in more to Medicare if they sell their home - again a surcharge.

Maybe it is time to start thinking in “us” rather than “them”.

Re: A solution to keep Social Security solvent

BrianL306623 — Fri, 08 Nov 2024 19:34:07 GMT

I understand the perspective of the CRS. Yet, someone in Congress reads it. Do nothing? Really? As the CRS report stated, if the cap is raised or eliminated, we can have solvency for at least another 35 years. That would help the current beneficiaries as I do not see why/how it would not!

IMO, the issue with savings is that the govt is too willing to give out money and folks may actually expect it when they come of age. Also, the problem with unemployment!

Bottom line - we need to do something. Yet, it will take Congress to pull their collective heads out of their bottoms and work together! 😉

Re: A solution to keep Social Security solvent

GailL1 — Fri, 08 Nov 2024 22:00:53 GMT

@BrianL306623

Do something ? That’s the problem, nobody can agree on what to do -

Just like this one that you have brought forward in this post - look at the various options - starts about page 20 of this CRS report. There are (4) Options with several sub-options under each of the (4).

There are CRS reports on many of the other proposals

Here’s one on the Retirement Age

CRS Report - Social Security Retirement Age

Tons of different proposals under this one too but the one that changes both the FRA (full retirement age) and the EEA (early eligibility Age) on page 16 is the most savings of the shortfall - 44%

Again, tons of proposals but each one has their likers and their dislikers - You cannot take a program that influences the lives of so many, so drastically and change it so that everybody is all onboard unless you don’t care about the personal, societal and political consequences - and in many instances, this means the job of those who has to make the decision to make the changes.

Republican President Reagan and Democratic House Leader Tip O’Neill made changes back in the 1980’s that brought the SS program back from the brinks - They did a bit of lots of stuff - yes, many were upset but we made it through - those 40+ years.

Most likely that is what it is gonna take this time too - a bit of a lot of stuff.

At the end of The Trustee Report the same language is included every year -

“ Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Taking action sooner rather than later will allow consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

Social Security Trustee Report 2024 Summary

Re: A solution to keep Social Security solvent

BrianL306623 — Sat, 09 Nov 2024 12:33:54 GMT

Yes, there are obstacles & differences, yet that does not mean it cannot get done. I guess I am not such a negative Nancy, and I look for ways to get it done rather than throw dirt on the mud pile.

Re: A solution to keep Social Security solvent

GailL1 — Sat, 09 Nov 2024 14:14:05 GMT

Oh, I am not saying that we should not get it done - I am saying that it is gonna have to be a lot of things affecting many different segment of participants to fix it - not just one or two things that end up affecting just one segment of the members.

Can it be done - is the other thing. I am doubtful just because there is such disagreement on the program and how to fix it and/or make it better.

as always, any legislation to fix it will be done when it gets critical or we will just let the reduction play out and go from there.

Re: A solution to keep Social Security solvent

MichaelM873962 — Mon, 11 Nov 2024 20:07:29 GMT

How can we get AARP members, union members and other americans working together to address this issue? I'm willing to help if we form a group on https://www.meetup.com/home/?suggested=true&source=EVENTS and establish one shared plan to fix social security. I feel the new republican administration will try and cancel the program or move the funds to a market plan like 401K's.

Re: A solution to keep Social Security solvent

GailL1 — Tue, 12 Nov 2024 00:42:34 GMT

There isn’t ONE shared plan -

SSA.gov - Proposals To Change Social Security

The problem has been going on now for OVER (10 ) years. We have had proposals, we have had various commissions to develop the perfect plan to fix it - but we have managed to only fix a very few things,

You don’t have to worry about any complete changes to the system we have now for at least current to soon to be retirees. It is baked into law and would take a major overtaking to change it and then everybody would have to be onboard cause it has to also pass Congress.

Now maybe we could set up a completely different program for perhaps those about 30 years old or younger - since we seem to be proving that this old way doesn’t work so well financially since we haven’t figured out how to tax some machine doing the work of 10 people to fund the program.

Do you even think that within the AARP umbrella, we could all agree on what to do?

Re: A solution to keep Social Security solvent

Tonster521 — Tue, 12 Nov 2024 15:50:31 GMT

@GailL1 @BrianL306623 I am trying to reply to both of you as well as other readers of this interesting topic. It is clear to me that both of you have researched this topic and provided us with you thoughts. I wish more would offer their thoughts. Who knows, there may be some other ideas and/or concepts that may be solutions. More importantly, we need to contact our Representatives directly. I have done this on many occasions (mostly with Medicare issues) and have had positive outcomes. I attend all seminars that my Representative hosts. Although you may not get a chance to talk directly to the Representative because of the number of attendees, you can discuss issues with their staff which is productive.

At any rate, income inequality has been an issue for many years. Instead of closing the difference (especially by increasing minimum wages) it appears to be increasing. I am providing a link to an article dated March 13, 2024 from the Tax Foundation https://taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2024/ It is statistical data that may be cumbersome for some. At the least, take a look at Table 1 which provides a Summary of Federal Income Tax Data, TaxYear 2021. The Table informs us that for tax year 2021, the top 10% of tax returns or 15,358,991 reported $7.7 Trillion of income which represents 52.6% of the Adjusted Gross Income ($14.7 Trillion) for 2021. WOW! Most folks do not know this statistic.So, would increasing FICA taxes for this group of about 15 million with about 52% of the Country's AGI place a financial burden on them? Obviously, no. It would be interesting to know the breakdown of the AGI (i.e., how much is payroll, Chapter S distributions, dividends, capital gains, interest, etc.). This is a huge source of revenue for the SS Program whether taxed directly as FICA or taxed as Federal Income Taxes (FIT). The FIT approach can be similar to how SS Benefits are taxed, then transferred to the SS Trust and/or Medicare Hospital Trust. This is like moving money from your right pocket to your left pocket.

It appears to me that FICA proposals/solutions have been focused on the bottom 75% or about 115,192,431 who reported only about $4.1 Trillion ($4,108,645,000,000) of AGI in 2021. There is an interesting article from the National Bureau of Economic Research (NBER) from February 2000 that questions do the high income folks subsidize the low income folks. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.nber.org/system/files/working_papers/w7520/w7520.pdf I hope I copied and pasted the article correctly. It is statistical and informative. The final result boils down to whether you use a 2% or 4% discount rate. At 4%, the findings are that the low income folks are subsidizing the high income folks. So, maybe the high income folks can level the field by paying their fair share of FICA. Another question that should have been addressed years ago is the 90% first bend point in the PIA formula for high income folks. As we know, the 90% bend point was created to keep folks above the poverty level. High income folks do not need the 90% bend point calculation. Perhaps that bend point can be developed at the 32% bend point instead of 90% based on some level of income whether taxed or not (i.e., muni nonds, etc.)

Re: A solution to keep Social Security solvent

MichaelM873962 — Tue, 12 Nov 2024 18:44:13 GMT

Thank you for the detailed response. I would very much like to try and come up with an agreed to solution that the majority would agree to. How about this:

1. Let's create/copy brief summaries of the known solutions

2. We post the solution summaries on the various communication portals.

3. Use simple thumbs up or down voting to identify the most popular plan

4. Use mass emailing and calls to supportive politicians

Thoughts?

Re: A solution to keep Social Security solvent

BrianL306623 — Tue, 12 Nov 2024 19:12:29 GMT

Okay Gail, you have provided some good insight into the issue and the problems. However, maybe because of your experience, you are biased as to whether A solution is even possible or that WE can bring the parties together to present/approve a workable solution. So, I am going to ask you straight up - do you have any idea as to what WE can do or are you just resigned to wait?

Re: A solution to keep Social Security solvent

BrianL306623 — Tue, 12 Nov 2024 19:26:18 GMT

@GailL1 @Tonster521 @MichaelM873962 A lot of folks have reviewed this thread yet, you are the only 3 responding. I am not a community organizer so I do not know what the next steps should/could be. Michael has made some proposals, yet I am not sure we would get better results with a mass emailing or portals. And for Congress, I am glad to hear that Tonster has had luck because I have not - just the standard thank you for your reply letter! We need someone with a true in. Anyone know Elon?

It appears to me that Gail & Tonestar have way more knowledge on this subject than I. There may not be a perfect solution out of the gate, yet, Tonestar's latest reply was quite the insight and maybe we start with the low lying fruit and go from there. Yet, we still have the issue of to whom to we send any proposal.

Thank you all for your insights and contributions and let's see where we can take this.

Re: A solution to keep Social Security solvent

GailL1 — Tue, 12 Nov 2024 22:41:26 GMT

@BrianL306623 @Tonster521

Take the simpler way out and just make it another need-based program with the benefits formula having such bend points as to allow for MORE benefits to be given to those who have had the least amount of earnings during their working years.

OH, right it is already this way - but we can make it even more so - and just cut out any benefits for those having made some high average earnings during their career.

Then we could just fall all over ourselves to earn less and less instead of more and more during our lifetime of earnings.

I have always heard that Social Security was to keep one out of the clutches of poverty in their old age. But that’s not exactly right - it is there to keep one out of the clutches of poverty in their old age WHEN COMBINED WITH OTHER RETIREMENT SAVINGS.

How can one expect to stay out of the poverty level when their lifetime of earnings didn’t get higher to build a better benefit especially when for a vast majority of beneficiaries have NO other retirement savings - they are living completely off of the old age benefit of Social Security - yet they complain that it is not enought to support them - thinking that is the way it is suppose to be.

Personally, I think maybe we should let them pick their benefit amount and if that is higher than what they are earning then maybe they should have to make up the difference in their contributions and their match themselves to assure themselves of what they want to get from it.

Since I am very old, I won’t be drawing my benefit for that many more years but neither will I have to continue to make contributions to the program either via taxes on benefits. Unless we devise some way for my estate to pay back the program in some way.

Why do we constantly want to punish the responsible and reward those who have had a lifetime to plan yet they don’t and I hear tell that they just can’t. What they gave was as good as it got for years -

Bread use to be a nickel a loaf now it is $ 5.00 a loaf - so I see no other way than upping the benefit astronomically to give them that pie in the sky - and take from the others to whom we as a socially have deemed they don’t need it.

Now isn’t that some other form of government?