You should pay attention to the Social Security talk in Washington

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Not to be a buzzkill, but Social Security is running out of money. Fewer workers supporting more seniors in retirement = less money in the coffers.

That doesn’t mean retirees will stop getting checks. It means that if nothing is done — and that is a very big “if,” since everyone is on high alert about this possibility — retirees could receive monthly checks to the tune of only 79 percent of their benefits.

But there are two proposals before Congress now that could resolve this issue. They’re like mirror images of each other, meaning they’re almost complete opposites. They use different methods to get there, but both bills would do two things:

  • Make Social Security solvent for the next 75 years.
  • Get the program’s trust fund increasing once again.

Both bills are worth keeping an eye on, though neither one has passed the House.

Proposal 1: Increase benefits and taxes

Rep. John Larson, D-Conn., wants to increase benefits — and taxes. His bill is pretty popular, and has more co-sponsors (156 – that is a lot!) than any other previous proposal to expand the program. Who’s Larson? Ranking member of the House Ways and Means Social Security Subcommittee.

Larson’s plan to increase benefits requires increased contributions. Gradually, the contribution rate would be boosted starting in 2019. By 2042, workers and employers would both pay 7.4 percent — as opposed to today’s 6.2 percent each.

Larson wants to change how Social Security benefits are taxed — they haven’t changed since 1983. Individuals who earn more than $25,000 a year or couples who jointly earn $32,000 are taxed on their benefits. These thresholds would be boosted to $50,000 for individuals and $100,000 for married couples.

Also to note: The tax that shows up on your pay stub as “FICA” only applies to the first $127,000 of your income. Larson’s proposal would leave that amount in place — anything you earn over that amount would be free and clear of the payroll tax — but wages over $400,000 would be subject to FICA.

Proposal 2: Cut taxes and benefits

The other, by Sam Johnson, R-Texas, cuts taxes — and benefits.

Johnson’s proposal favors the chained CPI to calculate the COLA – the cost of living adjustment that means a boost in the monthly benefit. That would actually reduce benefits, because this index assumes that people will buy cheaper items – hamburger instead of steak – when inflation rises. So higher costs would not mean a bigger Social Security check.

This proposal (zero co-sponsors, if you’re keeping track) wants to slow the growth of the cost of Social Security. Johnson also wants to lower benefits for high-income workers, but raise them for low-wage-earners – similar to Larson’s proposal. In this plan, the full-retirement age would gradually rise by a couple of months each year, making 69 the new 67. Born in 1960 or later? This would impact you.

That FICA deduction? Johnson’s proposal would get rid of that. You’d take home more – might go toward a brokerage or emergency savings account.

But without that tax, Social Security would have to be funded from general revenues instead of our wages. That would make it more like welfare, says Mary Johnson, Social Security policy analyst for the Senior Citizens League. “(Social Security) would be subject to the annual appropriations process, funding squabbles and any whim of Congress.”

Another harsh critic of cutting the payroll tax: AARP.

FWIW, President Trump favors proposal 2.

We are also waiting on President Donald Trump’s tax plan. It’s not yet released, but the president has been pretty upfront about cutting the corporate tax rate. President Trump also favors cutting FICA.

Glass half empty, glass half full

It is definitely good news to hear the program is not on the chopping block. Current seniors who are collecting benefits and those who are a few years away can breathe a sigh of relief. If you want to maximize pre-retirement savings, you might consider making high-yield CDs part of your portfolio.

And it is in line with President Trump’s campaign promises that he would not make cuts to this vital program.

So what’s the bad news?

We’re just kicking the can further down the road.

The Social Security trustees say the system is 17 years away from running out of money. The Congressional Budget Office takes an even dimmer view, with a forecast of 13 years.

Don’t rely solely on Social Security to fund your retirement. Start saving today.

Jill Cornfield

I'm a reporter at Bankrate, talking retirement – my own as well as yours. Sign up for my free newsletter.