Social Security Could Become Insolvent 1 Year Earlier With This Change
Social Security recipients could face a big pay cut in 2035. That’s when the federal program’s trust fund reserves will run out, based on the current projections by the Social Security Board of Trustees.
But those projections assume that nothing changes with Social Security. Some ideas have been floated about how to avoid steep reductions to retirees’ benefits in the next decade. However, other proposals would cause the federal program to run out of money even sooner than 2035. Social Security could become insolvent at least one year earlier than expected with one proposed change.
How Social Security would change
U.S. Representative Rodney Davis (R-Ill.) thinks that millions of Americans “are being unfairly punished by the Social Security Act” as it stands today. Retirees with government pensions are eligible to receive Social Security benefits. However, those benefits are reduced. Davis wants to change this.
His Social Security Fairness Act (H.R. 82) would eliminate two provisions currently in effect. The windfall-elimination provision limits Social Security benefits for public service workers. The government-pension offset reduces benefits for spouses and widows of individuals with government pensions.
This bill would get rid of these two restrictions on any benefits payable after December 2021. The windfall-elimination provision impacted around 2 million people as of December 2021, according to the Congressional Research Service (CRS). The CRS estimates that the government-pension offset affected close to 724,000 people as of the end of last year.
Note that this legislation wouldn’t impact all public service workers. Around 25% of state and local government employees aren’t covered under Social Security right now. Also, most federal government workers who were hired prior to 1984 aren’t covered under the federal program.
Accelerating the countdown
There’s one major drawback to Rep. Davis’ bill: It would accelerate the countdown to Social Security’s insolvency. Stephen Goss, Social Security’s Chief Actuary, explained why in a July letter to Davis and Rep. Abigail Spanberger (D-Va.), the bill’s lead Democratic co-sponsor.
Goss wrote that doing away with the windfall-elimination provision and government-pension offset would reduce net cash flow for Social Security by $146 billion between 2022 and 2031. He also noted that this would result in the depletion of the two primary Social Security trust funds in 2034, one year earlier than current projections.
But the Committee for a Responsible Federal Budget (CRFB) thinks those estimates could be overly optimistic. The CRFB believes that the bill could cause Social Security to reach insolvency as early as 2032 using “more accurate economic assumptions,” including the impact of higher cost-of-living adjustments (COLAs) due to soaring inflation.
In addition, the CFRB maintains that the proposed legislation would disproportionately help higher-income households. Because of this, the fiscal watchdog group argues that the Social Security Fairness Act would “make Social Security less fair, not more.”
Wide support, but potentially long odds
Rep. Davis has attracted wide bipartisan support for the Social Security Fairness Act. The bill has 299 other co-sponsors — 290 Democrats and 90 Republicans.
The proposed legislation has also unsurprisingly picked up a lot of support from organizations representing public service workers. For example, the National President of the Fraternal Order of Police, the National Education Association, the California Retired Teachers Association, the National President of the American Postal Workers Union, and the National Rural Letter Carriers’ Association have publicly endorsed the bill.
The House Ways and Means Committee is already reviewing the Social Security Fairness Act. Is it a slam dunk to quickly move through Congress? Actually, no. The committee review could instead slow down the process.
Even if the bill passes in the U.S. House of Representatives, it would still need to also sail through the Senate. Skopos Labs, which uses artificial intelligence to predict the odds for potential legislation, estimates that the bill has only a 4% chance of being enacted, at this point.
If the Social Security Fairness Act does pass, it will increase the urgency for Congress to take steps to shore up the federal program. President Biden wants to tax income above $400,000 to help fund Social Security. This would go a long way toward preserving retirees’ benefits and enjoys broad bipartisan support among Americans. With the clock ticking until the program becomes insolvent, Biden’s plan could be the Social Security change that’s most likely to happen.
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