Posted on 09/03/2018 10:30:14 AM PDT by gattaca
To say that Social Security has issues would be a bit of an understatement.
The latest Social Security Board of Trustees report, released in early June, suggests that the program will have higher expenditures than revenue collected this year for the first time since 1982. Although this net cash outflow will begin relatively small, with just $1.7 billion and $0.2 billion expected to flow out of the program's $2.9 trillion in asset reserves in 2018 and 2019, respectively, it'll ramp up with each successive year afterward. By 2034, Social Security's $2.9 trillion in excess cash could be completely gone. If this excess cash disappears and Congress fails to address the program's estimated $13.2 trillion cash shortfall, then a 21% cut to benefits could await existing and future beneficiaries.
Senator Sanders lays out a plan to bolster the services Social Security provides But Social Security's woes are about more than money. There are procedural issues, too, that can make getting benefits a chore for certain folks, such as the disabled. This is what prompted former presidential candidate Sen. Bernie Sanders (I-VT) to introduce the Social Security Administration Fairness Act on June 27, 2018.
The Social Security Administration Fairness Act aims to make three substantive changes to the existing law.
To begin with, it would set the Social Security Administration's (SSA) funding at 1.5% of overall benefit payments. Last year, despite $952.5 billion in expenditures, the SSA received just $6.5 billion in funding to run offices and pay employees. Though this was an improvement from the $6.2 billion in funding apportioned for 2016, the fact remains that the program's funding has declined 9% since 2010 as its beneficiary count has grown by 15%. More than doubling the SSA's funding should help it work through an exceptionally long disability request backlog, as well as meet the expectations of beneficiaries who have questions or concerns.
Secondly, Sanders' bill would address the exceptionally long wait times those applying for disability contend with in regard to disability insurance payments and Medicare. This bill would eliminate the five-month waiting period to receive benefits for approved Social Security disability insurance (SSDI) recipients, as well as eliminate the two-year waiting period of SSDI beneficiaries to qualify for Medicare.
Third and finally, it would place a moratorium on the closure of Social Security field offices and contact stations that are on the front lines of providing services to the American public.
Sanders' bill comes with a pretty big drawback Essentially, the Social Security Administration Fairness Act is about removing barriers to benefits for those with long-term disabilities, as well as bolstering the SSA's annual budget to help those in need of assistance.
However, altering Social Security does have consequences.
The Social Security Office of the Chief Actuary examined Sanders' proposal and determined that parts of it would increase the long-term (75-year) actuarial deficit of the Old-Age, Survivors, and Disability Insurance (OASDI) Trust. Think of the actuarial deficit as the amount payroll taxes would need to increase today in order to completely offset the expected cash shortfall the program is projected to face over the next 75 years.
Interestingly, increasing the amount of funding to the SSA and placing a moratorium on office closures has a negligible impact over the long run. But removing the five-month window for SSDI beneficiaries, as well as the two-year wait period for Medicare for those with a long-term disability, would increase the OASDI long-term actuarial deficit by 0.17% (17 basis points). Using last year's Trustees report data, this would have increased the actuarial deficit to 3.00% from 2.83%. For a worker making $35,000 a year, depending on whether he or she is working for someone else or self-employed, this plan could cost an additional $30 or $60 a year in Social Security payroll tax to cover.
The facade of the Capitol Building in Washington, DC. IMAGE SOURCE: GETTY IMAGES.
Good intentions with little chance of passage Ultimately, Sanders' bill has good intentions of making Social Security benefits more accessible to the disabled, but it also has virtually no chance of being signed into law.
The biggest issue, as addressed above, is that it would worsen Social Security's long-term cash shortfall. With Congress demonstrating a lack of urgency in resolving the program's issues, it means a growing likelihood that the cost to fix Social Security would be even more painful for working Americans when implemented. Or, put in another context, there's little chance that an increase in spending is going to be authorized by Congress until some headway is made on the program's expected $13.2 trillion cash shortfall between 2034 and 2092.
The other problem here is that Congress is highly partisan when it comes to Social Security. With 60 votes needed in the Senate to pass any amendment to Social Security and both Democrats and Republicans digging in their heels on potential solutions, there's little chance that Sanders' bill would see the light of day -- especially in an election year in which politicians fear losing their seats in the House or Senate.
Clearly, something needs to be done to address Social Security's shortcomings in the service department. Unfortunately, nothing immediate appears likely due to the program's impending cash crunch.
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AUTHOR Sean Williams Sean Williams (TMFUltraLong) A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest. Follow @TMFUltraLong ARTICLE INFO Sep 3, 2018 at 7:06AM Investment Planning READ MORE Should Social Security Eliminate Benefits for the Rich? Why Doesn't the Unemployment Rate Ever Drop Well Below 4%? Why Don't More People Wait to Claim Social Security at 70? 5 Tips for Developing a Compensation Strategy for Your Business Why Do So Many People Claim Social Security at 62? Should Social Security Eliminate Benefits for the Rich? Find out why many support means testing -- and why others oppose it. Dan Caplinger (TMFGalagan) Sep 3, 2018 at 8:30AM For the majority of American retirees, Social Security represents a huge percentage of the income they receive after their careers have ended. From its initial purpose of providing a supplement to income in retirement, Social Security has now become the sole means by which tens of millions of older Americans pay vital living expenses and make ends meet.
Yet with Social Security in the middle of a financial crisis that has the appearance of a slow-motion train wreck, policy advocates are looking for ways they could change the way the program works to make it more financially viable over the long run. One of the proposals that has made the rounds recently involves cutting back on Social Security benefits for those whose incomes are above certain threshold levels. Although advocates for so-called means testing of Social Security payments argue that the move would be in line with the original purpose of providing social insurance to older Americans, opponents point to the relatively minimal impact such measures would have on Social Security's overall finances unless they were applied to a much broader swath of the population than most proposals contemplate.
One Social Security card mixed in with U.S. currency. IMAGE SOURCE: GETTY IMAGES.
Calls for means testing of Social Security benefits Numerous proposals over the years have called for means testing of Social Security to take away benefits for those who arguably don't need them. The most recent to get much attention was during the 2016 presidential campaign, when New Jersey Gov. Chris Christie released a plan that would have started phasing out Social Security benefits for those earning $80,000 or more per year. Christie's proposal would have completely eliminated Social Security payments to those with incomes above $200,000. Similar plans have used different thresholds and made different adjustments to benefits, but the general idea remains the same: pay less Social Security benefits to those with enough income to forgo receiving them.
Policy makers looking at the idea of means testing have seen both positives and negatives with such proposals. For instance, in the AARP's assessment of means testing several years ago, the group noted that with limited financial resources, having Social Security essentially make the decision to triage benefit payments based on financial need was arguably a prudent way to make the most of the money that's available to the program. That way, Social Security could keep fulfilling its function as an insurance policy against poverty in retirement.
At the same time, though, means testing has the potential to change the essential nature of Social Security. Once you take away what many see as an entitlement that they've earned by paying Social Security taxes over the course of their careers, the program starts looking more like welfare, with the negative connotations that many associate with it. It would also penalize those who've made other arrangements for their retirement income, including those who take jobs that pay pensions or work to save over the course of their careers.
Surprise! There already is something like means testing with Social Security What many people don't realize is that there are already provisions in place that achieve some of the same goals as means testing would. The reason more people aren't aware of the connection is that the federal government is somewhat subtle about how it imposes these limits. Rather than cutting benefits directly, it instead subjects some Social Security income to taxation, forcing wealthier retirees to pay taxes that in turn provide revenue that funnels back into the Social Security program.
Here's how it works: Take your outside income and then add in one-half of the Social Security benefits you receive. If that number is above $25,000 for single filers or $32,000 for joint filers, then up to 50% of your benefits can be subject to tax. When the number rises to $34,000 for singles or $44,000 for joint filers, the percentage moves up to 85% of benefits that can be included in your taxable income.
Every year, the IRS takes the tax money that gets paid on Social Security benefits and transfers it to the Social Security trust funds. The amount hasn't been huge, with just $37.9 billion out of the $997 billion in receipts that Social Security took in during 2017 coming from the income tax on benefits. Nevertheless, that's a significant enough amount that taking it away would dramatically hasten the depletion of the trust funds over the next 15 years.
Yet even with this light form of means testing, there's criticism. Many argue that the income limits at which benefits start to get taxed are too low. Others point to the fact that those limits aren't indexed for inflation, forcing an increasing number of people to pay taxes year after year.
Proponents of benefits taxation note that the system automatically applies progressive tax rates based on income, so that the more you earn, the more in benefits you essentially lose. That doesn't make opponents of means testing happy, but it's in line with many of the goals that those who support means testing are looking to achieve.
Keep your eyes open In the years to come, there will be plenty of new Social Security proposals intended to shore up its long-term finances. Many of them may include means-testing provisions. By knowing the potential points of contention, you can assess each of these proposals objectively to see what true impact they'd have on the program's financial condition -- and how they would affect your Social Security benefits both now and in the future. That way, you can make an informed choice about whether you support or oppose potential benefit cuts for wealthier Americans.
That's because so many of the "disabled" aren't.
But Sanders knows that.
I don’t want that commie b___ laying a FINGER on Social Security. For him, it’s just wealth redistribution to illegals and bums who never worked.
Just think how much would be in the fund to day with out LBJ raping it?
The story glosses over two things. If there is an increase being paid into Social Security this year, it is because of the Trump economy. Trumps plan was to grow the economy to help Medicare and Social Security. It’s been a short time and it’s already working!
And it talks about the Social Security taxation, that was implemented by Bill Clinton. Seems that when Democrats raise taxes the media completely ignores it. Except to point out that it’s only on the “wealthy”. Since when has those making 25,000 a year wealthy? As any thinking capitalist could predict, the definition of wealthy is on a sliding scale. Pretty soon it will be anyone that has a dollar more than you do.
I'd be willing to be about half of the disability roll is fraudulent.
“By 2034, Social Security’s $2.9 trillion in excess cash could be completely gone.”
Uh, you really believe in that so-called “excess”?
Ya got stock in the Brooklyn Bridge?
Like these ponzi schemes you need many more folks paying into it than people drawing from it. And able-bodied people getting it for free without paying a penny will bankrupt it even faster.
Plus, the government bureaucrats can't help themselves and the urge to pilfer from it. And then there is inflation, we are living longer, etc.
What could go wrong with stealing from your neighbor to fund your retirement? It’s now the American way!
Therefore, so many who are and don’t know their way around the system, don’t get them.
BTW, they are Democrats.
“Means testing” it’s coming.
My gamble has been that it will be income based like obumber care. I have set-up my retirement to be mostly already taxed savings so it does not show-up as income. But it’s a gamble, who knows what they will do. But you can be sure there will be cuts.
We should punish them when we Vote the DemocRATS out this November.
The stupidity of these lying politicians is truly unbelievable. What needs to be done with the Social Security Trust Fund is simply this. Get Every damned politician in the Federal Government and have a total audit of their finances. When that’s done. Take back all monies that they STOLE from the American Citizens that paid into it. Remember that these MFPOS’s have stole this money from us FOR DECADES. Arrest those politicians that took the money illegally and throw them in jail. Maybe Leavenworth, but I personally believe that they should go to GITMO. And the SSTF would be close to or even be solvent again. Don’t believe this. READ PEOPLE. The facts are out there to learn. Check up on your Senators and Representatives and then learn the truth!!
But are expected faithfully to vote for their socialist masters at every opportunity until the wrath of reality falls in on them. Venezuela, Zimbabwe, Cuba, etc. etc.
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