A Republican task force made up of the biggest group of conservatives in the House has released a reform proposal to prevent cuts to Social Security benefits as the system teeters on the verge of bankruptcy.
Social Security is facing future challenges because of factors including inflation and lower-than-expected tax revenue, with several estimates indicating that the main Social Security fund will run out of money in about 10 years, leading to cuts in benefits.
“Upon insolvency, the law mandates that the OASI trust fund can only spend in amounts equal to incoming trust fund revenue, which means that all 70 million retirees, dependents, and survivors—regardless of age, income, or need—will see their benefits cut by 23 percent,” the analysis reads.
This means that unless more money is found—either by raiding the general fund, by hiking taxes, or via reforms that will lead to program savings—Social Security beneficiaries will see smaller checks.
“Millions of American families who provide support to loved ones would experience economic hardship as well.”
“Proposing more spending without a sustainable solution will result in steeper cuts to Americans’ benefits,” the RSC wrote, arguing that President Biden’s plan is currently on track to cut benefits by 23 percent in 2033.
The RSC stated that this is “unacceptable and immoral,” while proposing program reforms to prevent the cuts.
While the RSC proposal examines several possible solutions, its proposed remedy amounts to a combination of making slight changes to the primary insurance amount formula, making a “modest adjustment” to the retirement age to account for increases in life expectancy, and limiting and phasing out auxiliary benefits for high-income earners.
What’s the Fix?
The GOP task force stated in the proposal that there are basically three ways to address the problem of Social Security’s looming insolvency.One possible remedy is debt-financed general fund transfer, which the RSC argues isn’t sustainable.
“This approach would effectively lock in enormous deficit spending that would expose taxpayers to more than $200 trillion of debt (not accounting for interest) from FY 2024 until FY 2096,” the blueprint reads.
Alternatively, it would open the door for “massive” tax increases to pay for the increased general fund spending.
“More fundamentally, this option would solidify the inability of Congress to address America’s fiscal insanity,” the RSC argued, pointing out that America is now roughly $34 trillion in debt and that almost the entire projected deficit increase from $984 billion to $3.29 trillion by 2033 is being driven by Social Security and Medicare shortfalls.
Debt-financed general fund transfer would also amplify the economic threat posed by China, the RSC argued, given that the country is the second-largest foreign holder of U.S. debt.
“Further leveraging our irresponsible debt obligations to foreign countries, especially adversarial nations, bears great risk to the United States,” the RSC stated.
“If Social Security approaching bankruptcy does not motivate Washington to make the program sustainable, and instead Congress doubles down on the problem with more deficit spending and taxes, Congress will have forever abdicated its responsibility to restore fiscal sanity.”
Another option that is often proposed by those on the left side of the political spectrum is raising taxes.
Democrats have proposed raising the upper limit on the level of income subject to payroll taxes, which is currently capped at $168,600.
The GOP task force argues against this approach, claiming that applying the payroll tax to all earnings would not only result in the biggest tax increase in U.S. history but also fail to make Social Security solvent while eliminating jobs.
“President Biden and Democrats in Congress continue to mislead the American people into thinking that ’tax hikes on the rich' can solve the problem,” the RSC stated in the blueprint.
Program Reforms
The RSC’s proposed solution, therefore, is program savings by enacting a series of reforms.“For instance, the RSC Budget would make modest changes to the primary insurance amount (PIA) benefit formula for individuals who are not near retirement and earn more than the wealthiest benefit factor,” the RSC stated in the blueprint.
Besides seeking to trim how much in Social Security benefits high-income households get, the RSC proposes raising the retirement age to account for increases in life expectancy. The group doesn’t offer a specific target age, however; instead, it calls on President Biden and Democrats to come to the table and engage in discussions on “sensible reforms to save the program” to determine the details.
The proposal also suggests limiting and phasing out auxiliary benefits for high-income earners, with the specifics again left for future talks.
Also, the RSC proposed bolstering Social Security fund solvency by increasing payroll tax revenues through “pro-growth tax reform, pro-growth energy policy that lifts wages, work requirements that move Americans from welfare to work, and regulatory reforms that increase economic growth.”
With regard to tax reform, the RSC proposal seeks to cut taxes by nearly $5.5 trillion over 10 years, estimating that the pro-growth impacts would result in $566 billion in additional revenue.
Other tax-related reforms include making individual and business provisions of Trump-era tax cuts permanent, which would increase payroll tax revenues by about $27.5 billion over 10 years.
Another payroll tax revenue boost of $6.3 billion would be achieved under the RSC proposal by enacting other pro-growth tax reforms allowing businesses to fully and immediately expense their investments in research and development.
“[Overall,] We will not now or ever support cutting or delaying retirement benefits for any senior in or near retirement,” the committee claimed.
“With insolvency approaching in the 10-year budget window, Congress has a moral and practical obligation to address the problems with Social Security.
“These common-sense, incremental reforms will simply buy Congress time to come together and negotiate policies that can secure Social Security solvency for decades to come.”
The RSC blueprint serves as a list of policies that Republicans may pursue if they win back a majority in the House and retake the White House.
The future of Social Security has also become a key political talking point as the 2024 presidential campaign heats up.
President Biden has accused Republicans of seeking to cut Social Security benefits, which the GOP has denied and the RSC’s budget blueprint insists isn’t the case.
