Social Security Debate Shifts From Benefit Cuts to Bigger Checks

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WASHINGTON—The Social Security debate has moved left.

That shift, evidenced by presidential candidates’ plans and a bill backed by nearly 90% of House Democrats, departs from years of conversations about an elusive bipartisan compromise where Democrats agree to lower promised benefits and Republicans accept higher taxes.

Instead, President Trump has ruled out cuts to future benefits. Democrats have lined up behind larger benefits and higher taxes.

Democrats’ proposals show a party growing more comfortable with tax increases and shifting away from trying to reduce budget deficits. They have been nudged by activists trying to reset Social Security discussions dormant in Congress since the failure of President

George W. Bush’s

partial privatization plan.

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Now, Democrats want to expand the popular program, emphasizing low-income retirees, widows and people who left the workforce to care for family members.

“Whatever we do is going to be bold,” said Rep. Dan Kildee (D., Mich.).

President Trump’s no-benefit-cuts position in 2016 shrank the partisan divide, tempering the Democrats’ advantage on the issue. Positions taken since then by House Democrats and candidates

Elizabeth Warren,

Bernie Sanders

and

Joe Biden

widen that gap again.

“It’s an interesting story of how a policy position, whether I agree with it or not, can go from being a fringe position to a dominant position of a political party in a relatively short period of time,” said

Andrew Biggs,

resident scholar at the conservative American Enterprise Institute.

Unlike other safety-net programs such as food stamps, Social Security is viewed as an earned benefit, because it is largely funded through payroll taxes and check sizes are calculated based on earnings. It enjoys unique support across age groups and political affiliations.

In a 2018 Pew Research Center poll, 78% of Democrats and 68% of Republicans opposed cuts in future benefits. Younger voters showed more support for reducing future benefits, and 42% of people ages 18 to 29 assume they won’t get any benefits.

Social Security presents a political challenge, but it is also a math problem. Today’s taxes must generate enough money to pay benefits that today’s recipients accrued over their working lives. That math is changing. The demographic bulge of baby boomers is retiring, and living longer. Because high-income workers have experienced faster wage growth than the rest of the population, a greater share of U.S. wages is now exempt from the payroll tax, which stops at $132,900. That smaller tax base contributes to the long-run shortfalls.

Costs are projected to exceed income next year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund, built up when payroll taxes exceeded benefits.

Unless Congress acts, that trust fund will be depleted in 2034 and benefits would be automatically cut by more than 20%. Congress could fill the gap by raising payroll taxes or diverting general-fund revenue. Less disruptive changes now could close the shortfall, but lawmakers have little incentive to move.

Make benefits richer, and the trust fund runs out sooner. Raise taxes, increase the retirement age or slow benefit increases, and the program stays solvent longer.

Ms. Warren would increase everyone’s benefits by $200 a month, paid for in part by taxing investment income. Mr. Biden would give a bonus to the oldest Americans, and raise payments to surviving spouses. Mr. Sanders would tax wages above $250,000 to extend the program’s solvency and raise minimum benefits.

That is all far from where Democrats were earlier this decade, when both parties focused on deficit reduction. As part of a deal, President Obama proposed a formula under which Social Security benefits would grow more slowly.

By late 2016, however, Mr. Obama embraced more generous benefits, and presidential candidate

Hillary Clinton

backed expansion. Mainstream Democrats joined progressives like former Sen. Tom Harkin of Iowa in support of boosting benefits.

“Now, we’re seeing some variations on a theme,” said Nancy Altman, president of Social Security Works, an advocacy group. “It becomes a clear distinction between the parties.”

A plan from

Rep. John Larson

(D., Conn.) would expand benefits, raise payroll taxes and lower income taxes on benefits.

Mr. Larson’s Social Security 2100 Act would gradually bump the tax rate from 6.2% each on employers and employees to 7.4% each by 2043. That would hit every worker, including low-income ones. Social Security’s progressive benefit structure counteracts that regressive tax.

Mr. Larson would also impose payroll taxes on wages above $400,000, leaving an exemption for wages between $132,900 and $400,000. Eventually, inflation would erase that gap and all wages would face Social Security taxes.

His plan would extend Social Security’s solvency for at least 75 years, according to the chief actuary of the Social Security Administration. But the Congressional Budget Office, using different methodology, says solvency would last only through 2041.

Mr. Larson wants a House vote soon, though his bill stands little chance of becoming law with Republicans running the White House and Senate. He said the way the 2008 financial crisis sapped private retirement savings underscored the importance of Social Security’s guarantee and helped drive Democrats toward benefit expansion. Nearly 90% of House Democrats, 209, have signed on to the bill.

“This is a bipartisan issue across the country,” he said. “Not a bipartisan issue in Congress. But I think once people have to vote on it, it might become more bipartisan than people imagined.”

Republicans call the Democratic proposals nonstarters, but they haven’t coalesced around anything.

Some GOP lawmakers say they are open to a combination of revenue and spending changes and emphasize bipartisanship—as in 1983, when President Reagan and congressional Democrats raised the retirement age and accelerated scheduled tax increases.

Legislatively, that is likely required for any plan to become law. The fast-track, simple-majority procedure used for the 2017 tax cut and 2010 health law doesn’t apply to Social Security. One party would either need to get 60 votes or scrap the Senate filibuster.

“Democrats want to raise the payroll tax. Republicans aren’t wild about that, but it’ll be a compromise,” said Sen. Rob Portman (R., Ohio). “It has to happen soon to avoid the train wreck, so the sooner the better.”

But Mr. Trump vowed in 2016 to preserve promised Social Security benefits, helping himself politically but putting him at odds with many GOP lawmakers. Also, Republicans now rely more on older voters, making them more reluctant to reduce future benefits.

“It leads to them abandoning their prior policies on Social Security, but not knowing what their future policies are,” Mr. Biggs of the American Enterprise Institute said.

Nonpartisan groups still produce proposals along the old-compromise lines. Recently, the Concord Coalition and the Committee for a Responsible Federal Budget offered one designed to boost economic growth. It would encourage older workers to delay retirement and provide a “poverty protection benefit” for low-income workers.

But in Congress, there is little urgency or appetite for compromise proposals. Social Security may stumble toward insolvency in 2034—sooner if there is a recession or later in a booming economy.

Rep. Tom Reed

(R., N.Y.), the top Republican on the Social Security subcommittee, said some benefit increases might be worth examining. He opposes across-the-board increases or adding investment-income taxes.

“The longer we wait, we have fewer and fewer solutions that can be implemented in a practical way,” he said. “[I] would love to do this without tax increases or revenue increases, but it is clear if you do the math that is becoming more and more difficult.”

Write to Richard Rubin at [email protected] and Kate Davidson at [email protected]

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