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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
Thesamedebate
February 06, 2014 at 6:13 pm

So how long before the people that pay in and have no chance getting money out think this is a great idea? The object of Social Security is we all pay in and we all get out at retirement. The amazing thing somebody actually thinks its a great idea that someone pays in their entire working life and when they get ready to retire you tell them sorry, but you look like you can handle retirement on your own. I don't get any, nobody should... period!

Tom
February 06, 2014 at 6:02 pm

Leave SS alone. No need to be world cops anymore ~ cut the defense budget ~ bring our troops home and pay them to work on our domestic issues.

Reduce entitlements (benefits) that politicians get ~ they are not in line with the rest of society. Also have term limits (2 terms)for all political positions (senate & house)

People above a certain wealth\income level don't need SS ~ it's peanuts to them ~ implement a limit

rory tees
February 06, 2014 at 5:52 pm

How come no one ever talks about the Government running out of welfare money?What's that all about?

ELLEN SUTTON
February 06, 2014 at 5:38 pm

LAY OFF THE SOCIAL SECURITY, WE THE PEOPLE WORK HARD AND PAID INTO FOR YEARS. IF YOU WANT TO CUT BACK TAKE IT FROM THE PEOPLE IN CONGRESS. THEY DON'T NEED IT.

Mike
February 06, 2014 at 5:30 pm

Food and energy are not considered in the Federal Inflation figure

Suraci
February 06, 2014 at 5:14 pm

I get more than $300 a month on SS but my bills to live in my paid for house are WAY more than I can survive on. Taxes and insurance, water and electric are more than I can afford in my tiny 8oo sq foot house. I am so thankful for what I have but now I can not keep it because the goverment wants to tax me more than my SS can pay for and keep the lights, water and some food in the house. I guess I will soon rent and try to die before I must go homeless and beg. When your older we must pay people to fix all the stuff ( like my water pipe that just broke )I used to do myself and can not anymore. UGH! Please either raise SS or LEAVE IT ALONE, it is NOT the answer to a Nation plagued with financial problems. Hey, why not start another costly war, that went well.....

Mike
February 06, 2014 at 5:10 pm

5-10 minutes to appear?? How about 40 MINUTES, and still no post???

Brian
February 06, 2014 at 5:08 pm

How about not spending over half of the tax money on War ?
That way, we would have plenty of money, and not need to
"borrow" from the Social Security Trust Fund. How about
treating each other with Respect ?

gazzzmann
February 06, 2014 at 5:05 pm

Try to find out what political party took away food and fuel when they calculate our Cost Of Living Adjustment COLA I called Social Security and they would not tell me

Intheknow
February 06, 2014 at 5:01 pm

The government stole from SS and that's why it is in the mess it is. If government would keep their sticky fingers out of it, it would have been fine. They used it as their own personal bank.

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