New proposal would improve Social Security’s finances and modestly enhance benefits

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Rep. Al Lawson (D-FL) recently proposed a piece of Social Security legislation that has been scored by the SSA office of the Chief Actuary. The Lawson proposal is the second major Social Security bill in a month. Following Representative John Larson (D-CT) Social Security 2100: A Sacred Trust.

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As a reminder, Social Security actuaries anticipate a program deficit over the next 75 years of 3.54% of taxable payroll. This deficit reflects a combination of rising costs and constant levels of income (see Figure 1). Rising costs are the result of a slow-growing labor force and the retirement of baby boomers, which increases the ratio of retirees to workers. Social Security deficits can be bridged by either raising the income rate and/or reducing the cost rate.

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Social Security proposal will increase revenue and temporarily increase benefits

Both the Lawson and Larson bills retain existing benefits — that is, they do not reduce the cost rate. Instead, they raise the income rate by removing the maximum taxable income limit. The area where the two bills differ the most is the increase in profit. While the Larson Bill proposes a dozen enhancements for a period of five years, the Lawson Bill offers four enhancements on a permanent basis.

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Specifically, Lawson’s law proposes:

To pay for these profit enhancements and, more important, reduce losses at age 75, Lawson law would apply a payroll tax on earnings above $250,000 and on all earnings until the taxable maximum reaches $250,000. The law would impose a 2% profit factor on average income over and above the current law.

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Implementing these benefits and revenue provisions would almost halve Social Security’s long-distance deficit, from 3.54% to 1.88% of taxable payroll (see Figure 2).

Both bills have some favorable aspects: they maintain current profits and they generate additional revenue, although at least the Larson bill appears to limit revenue-raising efforts by President Biden’s pledge not to raise taxes on households earning less than $400,000. it happens.

In terms of profit enhancement, both “spend” a substantial portion of future revenue by switching from CPI-W to CPI-E indexing benefits. personally, i wouldn’t bother, Other benefit changes to the Lawson bill are relatively small and positive. Most important, they are permanent, avoiding the chaos created by temporary enhancements to the Larsen bill.

In the end, though, any solution is likely to involve a modest increase in the payroll tax. Emotion, a change that would raise taxes on people with less than $400,000.

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