Yesterday, House Ways and Means Social Security Subcommittee Chairman Rep. Sam Johnson (R-TX) introduced the Social Security Reform Act of 2016, comprehensive Social Security legislation that would put the program back on stable financial footing. Specifically, if enacted, Social Security’s chief actuary projects that these changes would achieve “sustainable solvency,” meaning that the program would be able to pay out scheduled benefits for 75 years and beyond. This would avert the impending 21 percent cut to benefits that is set to occur in 2034, when the program’s trust funds are expected to be exhausted.
Absent reform, Social Security beneficiaries will face a 21 percent cut that is set to occur in 2034.
Many other members of Congress have proposed changes to Social Security, but few have offered solutions that pass the long-term sustainability test for the program. Johnson’s offering joins a 2015 bill from Rep. John Larson (D-CT) (the Social Security 2100 Act) and a 2016 bill from Rep. Reid Ribble (R-WI) (the S.O.S. Act of 2016) as the only three pieces of scored legislation in the 114th Congress that would achieve sustainability for Social Security.
Johnson proposes to address the entirety of the program’s financial shortfall through benefit savings. While this forces him to rely on several aggressive adjustments, the legislation also includes a number of innovative policies that deserve careful consideration. One, in particular, is adapted from the report of the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings and would annualize the formula used to calculate benefits, making it work similarly to the benefit accruals of a defined benefit pension. Not only would such an approach be more straightforward, but it would dramatically improve work incentives.
In direct contrast to Johnson’s proposal, Larson’s legislation would tackle the shortfall solely through revenue increases. As a result, payroll taxes would rise dramatically across the income distribution in order to fund all currently scheduled benefits (and some targeted increases that he proposes). Although broad-based tax increases on this scale seem highly unlikely, applying Social Security payroll taxes to some earnings above the current taxable maximum of $118,500 and modestly increasing the tax rate were both elements of the BPC commission’s package.
Earlier this year, Ribble contributed a center-right offering to the discussion. His bill includes both benefit savings (roughly two-thirds of the total) and revenue increases. Many of the provisions share similarities with recommendations from BPC’s commission and have the potential to garner bipartisan support.
Social Security currently provides essential support for over 60 million beneficiaries, and the program will continue to be the bedrock of financial and retirement security for millions more who become eligible each year. But every day that action is delayed on shorting up its finances means a greater burden that will be borne by our children and grandchildren.
With the 114th Congress wrapping up business this week, none of these bills have a chance of receiving floor consideration. Nonetheless, Johnson, Larson, and Ribble are providing an important public service by keeping a focus on Social Security’s serious funding issues. These members view the need for reform as an opportunity to improve the program. They are right to do so and all who care about Social Security’s future should engage in that discussion under the new administration and Congress in 2017.