Daily Short - March 19th

Fixing Social Security

Social Security, long considered the “third rail” of American politics; touching it will kill your political career almost instantly. Everyone likes it, everyone acknowledges it will run out of funds in the next 10-12 years (based upon currently revenues and expenses) and no politician is willing to attempt to fix it. Quite a conundrum.

There are dozens of different changes that could be made to either extend the date of insolvency, the 10-12 year number, or fix it through the end of the 21st century; increase the retirement age, reduce benefits, raise the SSI tax, eliminate the phase out of the tax, etc.

Here are some ideas to fix it I am suggesting as maybe the least problematic to implement. First would be move the age of “retirement” from 67 to 68 for new workers entering the workforce. This generally means anyone who is 16-22 today. Those workers have a projected lifespan of over 90 years. One more year will not matter. This would extend the fund by 13%.

Second is to change the index used for the Cost of Living Adjustments (COLA), which are applied annually with the October payment. The belief amongst economists is the current method overstates inflation slightly. But over time, this small change will extended the fund by another 19%.

Third is to have the SSI tax apply to all wages. Current it only applies to wages up to $160,200, anything over that amount does not have SSI taxes taken from it. Yes this affects only the highest wage earners, but has the most benefit on closing the funding gap for Social Security, it closes 61% of the shortfall through 2100.

Next is the elimination of payments to those who earned the top 1% of wages while working. Yes, Elon Musk assuming he hasn’t departed for Mars by 67, would not be able to collect a check. I think he will find a way to pay for his milk and cookies without it. This reduces the gap by 18%.

These changes would not only completely close the funding gap for Social Security, but it would add 11% to the reserves. This would allow for a couple of additions to benefits. Raise the minimum payment to 125% of the poverty line for both new and current recipients. This would mean no senior on social security would live below the poverty line.

Assuming the numbers I used are correct, it might not be that difficult to fix Social Security. It would lean on the wealthy to provide most of the funding, has zero negative impact on the current workforce. They would possibly benefit from a higher payout, 125% of the poverty line, at retirement. Those in the future workforce would only have a year added to their retirement age, little to no impact.

Let me know your thoughts on this plan.

RJ