Could Congressman Chaffetz save Social Security? [Charts]

Would you believe that Social Security is now running in a deficit? Shocker, right?

According to the 2011 Annual Report  (the “Report”) to Social Security and Medicare Boards of Trustees, “Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983.” Or, in other words, Social Security sent out to retirees and disabled recipients more than working America contributed into the trust fund.

Ostensibly, the Report attributes this to a slow economy and excess contributions from the previous year. After a slight resurgence until 2014, that deficit is set to grow as more Social Security beneficiaries draw on the Social Security trust fund. Then, in 2036, when I’m hitting my sixties, the trust fund reserves will be “exhausted.”

Meanwhile, the amount of my taxable wages that will go to Social Security is steadily rising, from 11.5% in 2007 to about 17% in 2035. In other words, not only is the trust fund reserves disappearing, but I’ll have less income to live on over that time.

After 2035, “tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.” By the way, the trust fund isn’t even real. It’s numbers on a paper. It’s been emptied out by Washington for other projects, and we’re living on borrowed money, anyway.

Thankfully, I don’t plan on living until 2085…but my daughters will, and they’ll be dealing with that load of junk then.

Unless someone fixes it. Fat chance at that, right? It’s the proverbial “third rail,” in Washington parlance.

I’d probably do better to make a small fortune than rely on Social Security for when I retire.

Enter Rep. Chaffetz’s ‘‘Social Security Reform Act of 2011’’

In November, Utah’s Rep. Jason Chaffetz proposed a bill to reform Social Security to return the program to solvency.  Among others, the reform would accomplish some substantive results:

• Slow the growth in Social Security spending.
• Achieve annual balance 2051 and actuarial balance over 75 years
• A larger check for most retirees than they would receive without any reform
• No tax increases
• —No private accounts

How will the plan work?

First, it’ll raise the retirement age. The retirement age will rise a rate of 2 months per year until it reaches 69 in 2041 (if you were born in 1972)

• After 2041, the retirement age is indexed to changes in life expectancy, which is expected to be one month increase every two years.
• Early retirement age will be unchanged and it will maintain delayed retirement credit (8%/year, maximum 4 years)
• Since so many people retire early (two-thirds), there will be a reduction in benefits during early retirement.

Second, change the way cost of living is calculated. Rather than a CPI-W, use a chained CPI.

Back to the plan:

Third, change the way that insurance for beneficiaries is calculated by increasing the index for people who make above the 50% during their working career.

Fourth, gradually increase the number of years used to calculate the average monthly earnings from thirty-five to forty years.

Fifth, tie special minimum benefits to wages instead of CPI.

Sixth, increase benefits for 85 and older by 5%.

Last, and I like this part a lot, use a means test  to reduce the benefit for people who made $360,000 in the previous year. In other words, if you don’t need social security, why are you getting it?

A little more complicated than some of the simplistic rhetoric you often hear, perhaps, but the devil is in the details and the value is in the results…which are what? How about a path towards Social Security solvency?

Check out this chart of projected changes in Social Security under the current law without changes and under the Chaffetz proposal:

Those are percentages. But how much money does this amount to? Look at this chart below on how much the deficit between revenues and expenditures will be over just the next nine years:

Under the Chaffetz proposal, each year (every ten years on this chart) will see a gradual increase in the percentage of taxable payroll as a percentage of the federal budget. Assuming that Congressional

lawmakers don’t raid that money or increase the benefits without corresponding increases in revenues, this plan would put Social Security on a path towards the black.

Lauding Rep. Chaffetz for making a substantive effort at reforming Social Security, the Provo Daily Herald supports his effort and his plan. Comparing him to Rep. Paul Ryan, who earlier this year was pilloried by Democrats for his budget plan, the Herald observed that the plan could work.

In other words, Chaffetz’s plan would keep the system from going broke. The letter isn’t meant to be an endorsement of the idea; and we all know how slippery Washington numbers can be. But this proposal at least seems to be grounded in reality.

Politically — which is just as important — the scheme seems viable. The idea is not to slash benefits for everyone, but to slowly reduce

increases. With savings compounding, that would enable the system to regain financial stability with few if any retirees noticing the changes.

More important than the Daily Herald, though, was the endorsement by the Social Security Administration itself. In a November 9, 2011 letter to the Congressman, the SSA said that

“We estimate that enactment of the basic provisions in this proposal would maintain solvency of the OASDI [Old Age, Survivors, and Disability Insurance] program throughout the long-range (75-year) projection period and would fulfill the requirements for sustainable solvency[.]“

Emphasis mine.

Even the Salt Lake Tribune, while taking issue with the Chaffetz’s plan on grounds that it does not include an increase in revenues, likes that the plan recognizes the intergenerational wealth transfer that is Social Security and that it acknowledges that need to retain Social Security’s solvency.

The wealthier among us might never benefit from Social Security in proportion to what they would pay in higher taxes. But they still have an interest in preserving the soundness of the system, and not only for the benefit of fellow citizens. Rich people who pay in enough to save Social Security now may well, like many of the rest of us, benefit greatly in the future if their huge incomes ever dry up. It happens.

Might the plan work?

In an age of entitlement expansion, Utah’s Rep. Jason Chaffetz is swimming against the flow. His proposed bill would help return solvency to the Social Security program without denying the promises that have been made to generations of Americans  paying into the system. It’s a real plan, it grapples with one of the toughest topic in national politics, and it makes great strides towards cutting through the Gordian knot that is Social Security.

Find the text of the bill here.

[Social Security Administration][NPR][Daily Herald][The Hill][Salt Lake Tribune]

Related articles

• ICYMI: Chaffetz’s Plan for Social Security (chaffetz.house.gov)
• Why Social Security Is Still Falling Apart (dailyfinance.com)