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Readers` Mail: Numbers Don`t Add Up
Social Security payments are projected to exceed payroll taxes in the foreseeable future. If benefits are increased in order to pay a higher Cost-Of-Living-Adjustment (COLA) as your organization suggests, the shortfall will materialize even sooner than currently calculated. What does your organization propose should be done to overcome this potential problem?
H.C., Bonita Springs, FL To date, despite many Congressional hearings and much debate, no legislation is yet in place which would address the anticipated shortfall in the Social Security Trust Fund which is estimated to happen in 2015. In 2015, the government will need to raise payroll taxes, borrow, cut other spending, or reduce benefits in order to pay benefits. The proposals listed below from the American Academy of Actuaries, are 10 of the most commonly discussed to reform Social Security. American Academy of Actuaries Ten Most Commonly Discussed Proposals to Reform Proposed Fix | Percentage Of Financial Problem Solved | Accelerate the retirement age increase to 67 | 23% | Reduce COLAs by 0.5% (This action is already taking place in the form of changes made to the CPI) | 33% | Reduce benefits by 3% | 13% | Reduce benefits for those with retirement incomes above $45,000 | 75% | Tax Social Security benefits like private pensions | 14% | Increase the amount of taxable wages subject to payroll tax to $90,000 | 23% | Raise payroll taxes from 12.4% to 13.4% | 45% | Include state and local workers in Social Security | 10% | Invest 40% of the Social Security Trust Fund in the private market | 42% | Divert 1% of payroll taxes to individual retirement accounts (This would take money out of the Social Security system. The increased income from private retirement accounts in theory would offset any reduction of benefits from the Trust Fund) | -45% | TREA Senior Citizens League believes: - Any changes to Social Security to ensure solvency should be gradual and incremental, taking place over an extended period of time to avoid a Notch in benefits of new retirees. Congress and the new President should begin the reform process now in order to allow adequate time for a thorough study of options and full debate of proposals.
- Benefits of current retirees should not be cut or reduced in order to achieve Trust Fund solvency. Social Security is a major source of retirement income for 63% of the senior population. Those who have already retired need a retirement benefit they can count on. Since 1992, however, the Bureau of Labor Statistics (BLS) has made a series of changes to the Consumer Price Index (CPI) that has effectively lowered the rate at which COLAs are growing. The cumulative effect of those changes is a CPI (and thus COLA) that is growing about 0.8 percentage points more slowly than prior to the changes in 1992. This is an even greater reduction than the proposed 0.5% reduction. TSCL estimates that a Social Security beneficiary with average benefits in 1998 will lose about $121.88 this year because of this 'cut'. Had the Consumer Price Index For Elderly Consumers (CPI-E) been used to determine COLAs for 2000, the COLA would have been 2.6% versus the 2.4% that was received.
- TSCL believes non-Social Security budget surpluses should repay debt to extend the solvency of the Social Security Trust Fund. Because surplus Social Security was used in the past to pay for other government operations, TSCL believes NON Social Security surplus funds should be used to ensure that the Trust Fund 'debt,' now an estimated $799 billion, is repaid. The Congressional Budget Office estimates that the non-Social Security budget surplus between 2001-2010 may be more than $2 trillion. Congress and the President have pledged to lock away current surplus Social Security taxes, as they rightly should.-Editor
This article first appeared in Volume 5, Issue 9 of "The Social Security and Medicare Advisor" newsletter (September/2000). To receive future editions of "The Advisor" in its special, free e-mail version, please click here.
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