The Democrats’ Social Security 2100 Expansion Plan Risks Destroying Social Security As We Know It

In 2014, Rep. John Larson introduced for the first time a bill called the Social Security 2100 Act, which consisted of seven provisions intended to boost Social Security’s benefits and revenues, with revenue increases intended to be sufficient to remedy forecasted shortfalls and fund the benefit increases, and with confirmation of such by the Social Security Chief Actuary.

The bill would have increased benefits by

• Instituting a special 125%-of-single-person-poverty minimum benefit for those with 30 years of work history,
• Increasing the first PIA formula factor from 90% of pay to 93%,
• Using the CPI-E elderly-specific CPI index for cost-of-living adjustments, and
• Increasing the benefit taxation thresholds to $50,000 single/$100,000 married (this would have been a temporary change as it wouldn’t be adjusted for inflation).

And it would have funded these changes and restored solvency by

• Applying the payroll tax rate to earnings above $400,000 (there would have been a trivial/symbolic 2% accrual rate on these wages),
• Increasing the payroll tax by 1% for each of employer and employee (phased in over 20 years), and
• Investing up to 25% of Trust Fund reserves in the stock market.

The bill, at the time, never went anywhere, though Larson has since reintroduced it several times, but I bring it up to serve as contrast to his most recent version of this legislation, which he calls “Social Security 2100: A Sacred Trust,” and which he introduced at the beginning of November with 200 Democratic cosponsors, because his new version has changed substantially.

It no longer targets restored solvency.

It no longer asks all Americans to pay more to fund benefit improvements they themselves would receive at retirement.

Most concerningly, it plays the same games with temporary benefits as in the Build Back Better bill, but with more serious consequences.

Specifically, the bill would

• Increase benefits by about 2%,
• Adopt the CPI-E COLA adjustment,
• Implement a 125%-of-single-person-poverty minimum benefit,
• Increase benefits for surviving spouses in two-earner households,
• Repeal the Windfall Elimination Provision and the Government Pension Offset,
• Provide up to five years of caregiver credits,
• and other enhancements,

— but these increases would only last for five years! And this very short duration of benefit boosts is not mentioned in the bill’s “fact sheet” or press release, and it goes unmentioned in media reporting, such as at CNBC or MoneyWatch (though, to be fair, larger news outlets do not appear to have covered it at all).

What’s more, the payroll tax hike is no longer on the table, only the increase on wages above $400,000, and as a result, the insolvency date is only delayed until 2038 (as calculated by the Social Security Chief Actuary), which is a mere five years’ extension on the current projected insolvency date of 2033.

Alicia Munnell, director of the Center for Retirement Research at Boston College, further calculates that, over the coming 75 years, if indeed the new provisions remain for the five years provided for in the new legislation, the 75-year deficit would be reduced from 3.5% of taxable payroll, to 1.7% of payroll. However, if those provisions were made permanent at the end of five years, Social Security’s long-term deficit would remain nearly unchanged. And allowing the provisions to expire, she writes, would create “chaos administratively and in terms of public perceptions.”

She writes, “The staff of the Social Security Administration and the agency’s computer capability are already stretched thin; implementing a dozen new provisions would be an enormous challenge. And think about explaining to angry participants why their cost-of-living adjustments suddenly drop when the CPI-E provision expires. Turning provisions on and off will confuse people enormously, and undermine confidence in the program.”

Munnell is right. In fact, she understates the problem.

Consider that in many respects, we have gotten used to the sorts of games politicians play with sunsets and temporary provisions.

We can roll our eyes when the Republicans temporarily cut taxes, with a 10-year sunset due to the nature of reconciliation bills, or when Democrats do the same with tax credits. But we (most of us, anyway) don’t order our lives around the precise marginal tax rate we pay.

It is considerably more problematic when, as in the case of the Build Back Better bill, programs such as universal pre-school or heavily subsidized or free childcare are designed to end after a short number of years, due to the massive cost in implementing these programs and the disruption if they end — not just the administrative effort but the construction cost of new public school preschool classrooms replacing church and private programs, for example.

But it is even worse to introduce this sort of temporary benefit into Social Security, which is a core bedrock social insurance program built on the foundational premise of stability, so that Americans can plan their retirement savings with a reliable prediction of future benefits. If the Democrats increase benefits for 5 years, they have created a precedent which will surely open the path for frequent tinkering, including “temporary” retirement age increases or benefit cuts, in a manner no different than the tax system or pretty much any other sort of federal spending. When it’s all said and done, Social Security would lose its special status and take its place instead among the multitude of programs over which current beneficiaries/advocates fight, from student loans to electric vehicle subsidies.

All of which means that it should have been unthinkable to propose these sorts of temporary changes for Social Security, and it is in fact quite concerning that House Democrats don’t see it that way.

As always, you’re invited to comment at JaneTheActuary.com!