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Shrink Social Security to fix it?

By Jennie L. Phipps · Bankrate.com
Tuesday, February 4, 2014
Posted: 4 pm ET

One way to fix Social Security's deficits over the long haul is to shrink Social Security and provide smaller benefits for higher earners.

A team of economists at Texas A&M examined a 2013 report from the Office of the Chief Actuary at the Social Security Administration and concluded that shrinking the entire Social Security program has the potential to significantly reduce what all earners have to pay in Social Security taxes while preserving higher benefits for low-earning workers who need Social Security the most.

They argue that what higher earners save in taxes actually could fuel their retirement planning and in the long run improve their financial situation in retirement. Plus, because lower earners would get a relatively large Social Security payment, higher earners would have to pay less to fund welfare programs that provide food, housing and medical assistance. And because lower taxes would mean more money to spend, the economy would grow and that could actually increase the amount of wage taxes paid, as well as the number of people paying them.

Thomas Savings, distinguished professor of economics at Texas A&M, and one of the authors of the analysis, says a shrunken program would result in "higher income people who are no worse off -- tax reductions offset benefit reductions -- (and) lower earners who haven't lost anything. And you can have a reform that permanently fixes Social Security. I think that is important."

The analysis points out that a number of reform proposals made by both Democrats and Republicans are similar. The one on which they are basing their analysis was actually mentioned in the 2013 Social Security Trustees Report. It suggests that beginning with workers born later than 1957, the system create two new "bend points," starting at the 40th percentile of Social Security earnings. All workers with earnings above this point would receive lower benefits. This would affect the top 60 percent of earners. It doesn't affect low-income workers at all. The reform proposal also delays eligibility for full retirement age income by an additional two months every two years. This would affect workers born in 1961 and later.

Over a 75-year period, the reformed program's expenditures would be 25 percent smaller than they would be if Social Security were unchanged, the economists estimate. No one currently receiving Social Security or old enough to currently receive it would be affected. The benefit to younger workers is that they would pay less to support older workers and over time, the program's deficit would disappear.

Savings says that he teaches a class in public policy at Texas A&M where he explains this analysis to students, who often reject it, concluding that they will get lower benefits and that's bad. He tells them that they have it all wrong. If the program doesn't shrink over the next 45 years, he says, "You'll be living in smaller houses, driving cheaper cars and eating out less often than your parents because you have to support all the old people. This fixes that."

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58 Comments
Brent Vernon
February 10, 2014 at 10:50 am

The budget for Social Security was altered in 1968,effective for the Federal Budget 1969 by President Johnson. It was added to the General Budget to support the Vietnam War and his plan for "The Great America" he had planned. This has continued to today !!! If it was left alone to be used as FDR had planned, there would Not be a problem there today !!!!

John Hanten
February 09, 2014 at 12:12 pm

Quit taking money from Social Security to give to illegal aliens. Cut foreign aid to any country not our friend and ally. Cut back on food stamps, which are receive by people not needing the stamps.

Social Security reciprients have paid into the system for as long as 47 years. It's our money, not to be used for other programs and certainly should be separated from the budget use of SS monies for none SS requirements.

Fire any democrat that speaks of or plans to cut back on SS.

TAMSEN A. GOLDFIELD
February 09, 2014 at 10:00 am

NO way!!!! I am a senior and I have earned that $. Use other programs (war $?) to keep program alive. IMPORTANT! CHECK OUT SEN. BERNIE SANDERS,VT ON HIS WEBSITE!!!!!!

George Hannes
February 09, 2014 at 8:25 am

I am 88 and having paid in to it all my working years I feel the best answer is to get rid of the Ponzi scheme called Social Security. A look back tells me it was my worst investment.

glenn smith
February 09, 2014 at 8:19 am

As long as the government can find billions of dollars for foreign aid and farm bill, How can the ss be in trouble?

glenn smith
February 09, 2014 at 8:15 am

As long as the u.s. government can find billion of dollars for foreign aid and the billons for food stamps and farm bill, How can social security be in trouble?

Bob Lins
February 09, 2014 at 8:12 am

The one and only real, viable way to "fix" Social Security is easy, simple and straight forward. Eliminate the cap on income. Everyone should pay the SS premium on every dollar of earned income. As always, the rich are getting richer on the backs of the average wage earner.

Len Minetola
February 09, 2014 at 7:49 am

Except for the European Union which is made up of 28 countries, the United States has the most external debt in the world. When you have to continually try to pay off that debt social services suffer. Usually a smaller percentage of your GDP goes to social services than to debt repayments. We just approved a higher debt ceiling and we have probably stolen as much as we could from Social Security. Maybe it is time to start looking at ways to tighten the belt on government spending. Bring all our fighting forces home and reduce military spending. Bring back our businesses from foreign lands and put our people to work. Use the military that we brought back to guard our borders. Think America first when it comes to foreign aid and use the money for American aid. If you had 10 dollars left and had to feed your family would you give that away to someone you don't know?

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