Rep. Sam Johnson of Texas recently introduced legislation, "Social Security Reform Act of 2016 (H.R. 6489)," claiming that the Social Security Administration (SSA) believes it will make the program permanently solvent.
It sounds great, until you look at the details.
The SSA’s assessment appears to suggest that the legislation would create benefit cuts that are larger than the ones that we are trying to avoid without delivering the promised level of solvency. As a result, our children and grandchildren would have a program called Social Security, albeit one that bears little resemblance to what current beneficiaries enjoy.
The math is pretty simple. The Trustees said in their latest report that promised benefits would have to be reduced by roughly 19 percent if the reductions were applied only to those born 1954 and later.
Given that legislation largely exempts people born prior to 1961, the reductions are apt to be larger. The only question is: how does the legislation allocate the reduction of benefits to individual future retirees?
The legislation proposes multiple layers of cuts. So virtually all retirees born in 1961 and later will see benefit reductions. The hardest penalties will hit those who live a long-time, those who work less than 44 years, or people typically earning about $35,000 this year or more.
• The retirement age increases for many who aren’t really living longer, considering that the retirement age is still rising from the last reform of Social Security, which was in 1983.
• The deal gets worse for high-wage workers. The pay-back period of the taxes on the last $1,000 of earnings rises from 24 years to more than 180.
• Finally, the program would change a benefit formula such that workers making $35,000 today would lose about 16 percent. The size of reductions rise with earnings.
In the worst case, the high-wage worker who lives to 95 would see a 70 percent reduction in benefits. A worker retiring in 2030 with my work record (career earnings around $65,000) would lose about 45 percent of his scheduled benefit level.
This type of legislation reveals that politicians in Washington just want a program that voters can call Social Security. What the system does is a secondary concern; the changes in this process adjust old-age insurance so that buying-power of benefits progressively deteriorates as the person ages, and more than half of the lowest-income earners will see benefit cuts by as much as 50 percent.
Mechanically, this legislation doesn’t fix anything. It distributes the brokenness of the system to people born 1961 and later. The proposal seems to be little more than an agreement that our children and grandchildren will accept benefit cuts.
Here is the hard-line of Social Security reform: If you want Social Security to be a welfare program, and Rep. Johnson clearly does, just end it and transfer the resources to an actual welfare program, which will accomplish everything that the new "Social Security" would do with a fraction of the administrative overhead.
Brenton Smith writes on all aspects of Social Security reform, translating the numbers and jargon of the issue into terms that everyone can understand. His work has appeared in Forbes, MarketWatch, Fox Business, The Hill, and a number of regional newspapers. To read more of his reports — Click Here Now.
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