2 Lawmakers Attempt The Impossible: Saving Social Security

Authored by Mark Tapscott via The Epoch Times (emphasis ours),

More members of Congress, 329, co-sponsored the Social Security Fairness Act (SSFA) than nearly any other legislative proposal in 2024, but that may not be evidence of lawmakers’ eagerness to fix what ails the retirement pension program—the bill doesn’t address the fundamental insolvency issue.

The SSFA would end two provisions of current law that reduce benefits for millions of public employees at all levels of government with separate pension systems. Eliminating the provisions means more Social Security benefits for such workers.

In other words, the SSFA would increase the total amount of Social Security benefits paid out without providing new revenues to fund them. Even so, the bipartisan proposal is likely to pass Congress and President Joe Biden—who promised in his 2020 campaign to eliminate the provision—is expected to sign it into law when lawmakers reconvene after the election.

For decades, Social Security has been the untouchable “third rail” of American politics that virtually no Democrat or Republican dares to propose changing for fear of angering legions of elderly and disabled voters who depend on the program.

Approximately 70 million Americans are beneficiaries, making Social Security the largest federal entitlement program.

The Social Security Trustees’ latest report projects that the system will become insolvent in 2035 unless Congress approves major reforms soon.

Meanwhile, the ratio of workers paying into the system to beneficiaries is heading downward. The ratio in 1950 was 16 workers to one beneficiary; today that ratio is 2.8 workers per beneficiary. Plus, retirees are living longer today, drawing more benefits over time.

Politicians increase benefits, but are loathe to increase Social Security taxes or slash benefits.

The seemingly impossible challenge for Congress and the White House is how to reform Social Security if increased taxes and reduced benefits are untouchable. The last president to propose a major reform was George W. Bush, who shortly after being re-elected in 2004, suggested privatizing the system.

Under that proposal, Americans would have been allowed to divert some of their Social Security taxes into government-approved private investment funds. Bush hastily dropped the plan after opposition in both parties and in the mainstream media exploded.

More recently, two lawmakers have ventured beyond the raise-taxes-reduce-benefits dilemma to explore other ways of saving Social Security before it becomes insolvent.

Raising the Tax Cap

Rep. John Larson (D-Conn.) has introduced his Social Security 2100 Act repeatedly in recent years, and it has gained strong support (188 co-sponsors) among his Democratic colleagues. Larson is the top Democrat on the House Ways and Means Committee’s Subcommittee on Social Security.

During a floor speech earlier this year, Larson said that “more than five million of our fellow Americans have worked and paid into the system and get below poverty level checks from their government.”

Larson noted, however, that it has been decades since Congress approved changes designed to shore up the Social Security system’s finances. He also rejected suggestions from House Republicans that a study commission be created to recommend reforms.

“It’s long overdue that we not study this—how about we do what we’re elected to do by the public and actually vote,” he said.

“I commend President Biden for saying, look, the way we’re going to pay for this is by lifting the cap ... on people making more than $400,000 a year.”

Larson’s bill would not hike the Social Security tax rate, but would apply Social Security taxes to all taxpayers making more than $400,000 annually. The present salary cap on Social Security taxes is set at $168,600.

“Millionaires have already stopped paying into the Social Security program. Bill Gates stopped paying back in January. That is wrong, it’s not right, but to lift that cap will allow us to not only extend the solvency of Social Security, but increase benefits across the board,” he said.

According to an analysis by the Peter G. Peterson Foundation, an individual making $500,000 annually only pays Federal Insurance Contributions Act (FICA) levies on the first $168,600 of income, which equals $10,453 a year. Under the Larson proposal, the same individual would pay $31,000 in FICA levies, nearly three times as much.

Larson did not respond to requests for comment.

The Big Idea

Venturing even further into reform is Sen. Bill Cassidy, a Louisiana doctor and ranking Republican on the Senate Committee on Health, Education, Labor and Pensions.

Cassidy calls his proposal the “Big Idea” and it is based on the creation by Congress of a new $1.5 trillion investment fund that is totally separate from the Social Security Trust Fund—which receives FICA revenues that pay for benefits.

Asked by The Epoch Times how the new fund would be financed, Cassidy said “that is open to negotiation. You could sell government assets to fund it over time, you could borrow it and put it in there.

“Folks say ‘But wait a minute, isn’t that going to increase your debt?’ It turns out you’re not spending it, you’re putting it into escrow. And according to the Congressional Budget Office, that’s going to be considered a wash.”

The Big Idea escrow fund would be managed by an independent company that would bid for the job, assume a fiduciary responsibility for the results and invest the fund in a conservative portfolio of private sector entities to function like Sovereign Wealth funds.

“[Wall Street executive John] Paulson and [former President Donald] Trump have talked about creating a Sovereign Wealth fund. Advisers to Joe Biden have talked about creating a Sovereign Wealth fund. Now what we’re talking about with our Big Idea is somewhat of a Sovereign Wealth fund,” Cassidy said. Paulson is often mentioned as a potential Secretary of the Treasury if Trump is re-elected.

The same approach is already in use in the pension field, Cassidy said, with the federal government’s Thrift Savings Plan (TSP) for civil servants, the U.S. National Railroad Retirement Trust, Wisconsin’s public employee retirement system, and the Canadian government pension system.

Cassidy said the fund is projected to generate sufficient profits to cover 75 percent of Social Security’s revenue shortfall and that he is open to alternative approaches to covering the remaining 25 percent.

“Combined with some relatively minor tweaks to the program, at the end of 75 years, all the accumulated debt would be paid off, and the Social Security program would be able to cover its obligations in perpetuity,” he said in an earlier statement.

Asked how misuse would be avoided, Cassidy said “we’ve got a couple of mechanisms, we had the Heritage Foundation help us draft the way by which to prevent political meddling.” He said former Comptroller General David Walker has also suggested several solutions.

Cassidy said he supports a ban on investing in firms based in China, an issue that ensnared TSP managers in 2019 when Sen. Marco Rubio (R-Fla.) and Sen. Jeanne Shaheen (D-N.H.) highlighted the risks of federal worker contributions investing in Chinese firms.

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