Social Security could become insolvent 1 year earlier with this change

Social Security recipients could face a major pay cut in 2035. That’s when the federal program’s trust fund reserves run out, based on current projections from the Social Security Board of Trustees.

But those projections assume that nothing will change with social security. Some ideas have been put forward on how to avoid sharply cutting pension benefits for retirees over the next decade. Other proposals, however, would see the federal program run out of funds even before 2035. With one proposed change, Social Security could go insolvent at least a year earlier than expected.

Two people are sitting at a table and looking at a calculator.

Image source: Getty Images.

How Social Security Would Change?

US Representative Rodney Davis (R-Ill.) thinks millions of Americans are “being unfairly punished by the Social Security Act” as it stands. Retirees with a state pension are eligible for Social Security benefits. However, those benefits are diminished. Davis wants to change that.

His Social Security Fairness Act (HR 82) would eliminate two provisions currently in effect. The windfall elimination provision limits Social Security benefits for public service employees. Government pension compensation reduces benefits for spouses and widows of persons on government pensions.

This bill would remove these two restrictions on any benefits paid after December 2021. According to the Congressional Research Service (CRS), the windfall elimination provision affected approximately 2 million people as of December 2021. The CRS estimates that government pension compensation affected nearly 724,000 people at the end of last year.

Note that this legislation does not affect all public service employees. About 25% of state and local government employees are currently not covered by social security. Also, most federal government employees hired before 1984 are not covered by the federal program.

Speed ​​up the countdown

There is one major drawback to Rep.’s account. Davis: It would speed up the countdown to Social Security insolvency. Social Security chief actuary Stephen Goss explained why in a July letter to Davis and Representative Abigail Spanberger (D-Va.), the bill’s lead Democratic co-sponsor.

Goss wrote that abolishing the windfall elimination provision and the state pension offset would reduce Social Security net cash flows by $146 billion between 2022 and 2031. He also noted that this would result in the depletion of Social Security’s two primary trust funds by 2034, a year ahead of current projections.

But the Committee on a Responsible Federal Budget (CRFB) thinks those estimates could be too optimistic. The CRFB believes the bill could lead to Social Security becoming insolvent as early as 2032 using “more accurate economic assumptions”, including the impact of higher cost of living adjustments (COLAs) due to rising inflation.

In addition, the CFRB argues that the proposed legislation would disproportionately help higher-income households. That’s why the tax watchdog group argues that the Social Security Fairness Act would make “Social Security” less honestnot anymore.”

Broad support, but potentially long opportunities

Rep. Davis has attracted broad bipartisan support for the Social Security Fairness Act. The bill has 299 other co-sponsors — 290 Democrats and 90 Republicans.

Unsurprisingly, the proposed legislation has also received strong support from organizations representing public service workers. For example, the National President of the Fraternal Order of Police, the National Education Association, the California Retired Teachers Association, the National President of the American Postal Workers Union, and the National Rural Letter Carriers’ Association have publicly approved the bill.

The House Ways and Means Committee is already reviewing the Social Security Fairness Act. Is it a slam dunk to get through Congress quickly? Not really. The committee’s assessment could instead delay the process.

Even if the bill is passed by the US House of Representatives, it still has to pass the Senate. Skopos Labs, which uses artificial intelligence to predict the chances of possible legislation, estimates that the bill currently has only a 4% chance of passing.

If passed, the Social Security Fairness Act will increase the urgency for Congress to take steps to support the federal program. President Biden wants to tax income over $400,000 to fund Social Security. This would go a long way to preserving retiree benefits and enjoy broad bipartisan support among Americans. With the clock ticking until the program goes insolvent, Biden’s plan could be the Social Security change most likely to happen.

Add a Comment

Your email address will not be published.