The federal government has two options if it wants to keep Social Security functioning, according to a new report from the National Center for Policy Analysis (NCPA).
Since 2010, benefit payments have exceeded revenues, and the deficit is only growing, according to Liqun Liu and NCPA Senior Fellows Andrew J. Rettenmaier and Thomas R. Saving.
To continue funding the program, the federal government has two options, the “baseline” (current) program and the “reform” program.
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The government could keep the current benefit structure in place but increase the Social Security payroll tax by 3.3 percent. The authors refer to this as the baseline program.
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Or, the government could impose a reform program, keeping tax rates the same but instituting two changes: Raising the retirement age for workers eligible for benefits starting in 2023 and making the benefit formula less generous to high earners.
While Social Security is unsustainable at its current rate, very low earners would see gains from the authors’ reform program, which includes optional, individually directed retirement accounts that could increase retirees’ savings.
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A very low income earner born in 1985 would pay 13.5 percent of his income in taxes and receive benefits of 15.8 percent under the current program, resulting in net lifetime benefits of 2.3 percent of his earnings.
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Under a reform program, a very low income earner would pay just 10.2 percent of his income in taxes and receive benefits worth 14.5 percent of his income — resulting in net lifetime benefits of 4.3 percent of his earnings.
“The funding deficit is growing, and barring reform, will continue to grow indefinitely,” according to the report. “Higher tax revenues are necessary to fund benefits as they are currently calculated.”
The authors urge policymakers to utilize the reform option over the baseline option. The reform program would be a smaller undertaking and could potentially reduce the size of the federal budget.
How Social Security Reform Could Benefit Workers: http://www.ncpathinktank.org/pdfs/ba798.pdf
Coming Soon:
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On July 23, The NCPA will release a major health care spending study by NCPA Senior Fellow and former Medicare Trustee Thomas Saving and will hold a Capitol Hill briefing on that date. The forthcoming report analyzing 50 years of health care spending data will show the recession was responsible for reducing the rate of health care cost inflation in recent years, whereas the Affordable Care Act is increasing spending now, and will likely increase spending in future years.
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The seventh annual Four Star Leadership program is underway this week in Edmond, Oklahoma on July 13-19. The NCPA co-sponsors the summer leadership institute for exceptional high school students from around the U.S., along with the General Tommy Franks Leadership Museum, The Oklahoma Council on Public Affairs, and Oklahoma Christian University.