A Bold Plan To Fix Social Security Today – Here’s How It Could Work!

In early January 2025, Stephen Goss, the Chief Actuary of the Social Security Administration, released an analysis of a comprehensive proposal aimed at restoring long-term balance to the Social Security program.

This proposal, requested by Representative Steny Hoyer and crafted by economist Wendell Primus, seeks to address the program’s financial challenges through a balanced approach of revenue enhancements and benefit adjustments.

Key Components of the Proposal

1. Revenue Enhancements
   • Increase in Taxable Wage Base: The proposal suggests raising the taxable wage base from its current level of $168,000 to approximately $300,000. This means that higher-income earners would contribute more to the system, thereby increasing revenue.
   • Incremental Tax Rate Increase: A modest increase in the payroll tax rate is proposed to bolster the program’s funding.
   • Taxation of Benefits for High-Income Beneficiaries: The plan includes greater taxation of Social Security benefits for high-income individuals, ensuring that those with greater financial means contribute more.
   • Inclusion of Pass-Through Business Income: To prevent tax avoidance, the proposal ensures that pass-through earnings of business owners who materially participate are subject to the payroll tax.
2. Benefit Adjustments
   • Increase in Full Retirement Age (FRA): The full retirement age would be gradually increased, but only for individuals who have experienced significant increases in life expectancy and are capable of working longer.
   • Extension of Earnings Calculation Period: The period for computing average earnings would be extended from the highest 35 years to the highest 40 years, which could result in a slight reduction in benefits for some individuals.
   • Phasing Out Dependent Spouse’s Benefit: Recognizing the increased labor force participation of women, the proposal suggests phasing out the dependent spouse’s benefit.
3. Reallocation and Expansion of Coverage
   • Allocation of Taxation Revenues: All revenues collected from the taxation of retirement and disability benefits would be placed into the Social Security Trust Funds. Currently, a portion of these revenues goes to the Hospital Insurance Trust Fund (Medicare Part A), so adjustments would be required in the Medicare program.
   • Expansion of Coverage: The proposal aims to expand coverage by increasing immigration caps for direct care workers—a group essential for providing long-term care services—and extending coverage to the approximately five million state and local workers not currently participating in Social Security.

Impact on the 75-Year Deficit

The proposal includes 17 provisions, with 10 having a meaningful impact on the 75-year deficit. The combination of revenue increases and benefit adjustments is designed not only to eliminate the 75-year deficit but also to produce a growing trust fund beyond this period.

This comprehensive proposal offers a balanced and thoughtful approach to securing the future of Social Security.

By combining revenue enhancements with benefit adjustments, it addresses the program’s financial challenges while promoting fairness and sustainability.

Implementing such a plan would restore confidence in the system for both current and future beneficiaries, ensuring that Social Security remains a vital component of American social welfare.

FAQs

How does increasing the taxable wage base affect high-income earners?

Raising the taxable wage base to $300,000 means that individuals earning above the current cap of $168,000 would pay payroll taxes on a larger portion of their income, thereby contributing more to the Social Security system.

What is the rationale behind increasing the full retirement age?

The proposal suggests increasing the full retirement age for individuals who have experienced significant gains in life expectancy and are capable of working longer. This adjustment reflects changes in longevity and aims to ensure the system’s sustainability.

Why is there a focus on expanding coverage to certain groups?

Extending coverage to groups like direct care workers and state and local employees who are currently outside the Social Security system increases the contributor base, enhances fairness, and strengthens the program’s financial foundation.