The bill increases benefits for all workers by about 2 percent, on average. (Photo of old Social Security poster: AP)
New Congressional Budget Office analysis of the Social Security 2100 Act shows the bill would delay, but not avoid, exhaustion of the two trusts that fund scheduled benefits to retirees and disabled Americans.
Under existing law, CBO projects Social Security's primary OASDI trust fund will be depleted in 2032, leading to a 24 percent reduction in benefits for all retirees in 2033.
Under the Social Security 2100 Act, the primary trust fund would survive until 2041, after which retirees would see a 5 percent reduction in benefits.
The analysis comes as Democrats in the House of Representatives are considering marking up the bill in the House Ways and Means Committee by Thanksgiving, according to reporting in the Wall Street Journal.
The bill, sponsored by Rep. John Larson, D-CT, chair of the Ways and Means Social Security Subcommittee, has 210 co-sponsors in the House, all of whom are Democrats.
CBO's analysis came at the request of Rep. Kevin Brady, R-TX, ranking member on the Ways and Means Committee. During a committee hearing earlier this year, minority Republicans insisted a bill to reform Social Security be bipartisan, as has traditionally been the case with reforms to the largest spending program within the federal government.
The bill increases benefits for all workers by about 2 percent, on average. "The percentage increases would be largest for beneficiaries with lower lifetime earnings and smallest for beneficiaries with higher lifetime earnings," according to CBO.
It also establishes a new minimum benefit at 125 percent of the 2019 federal poverty line. A beneficiary who had worked 30 years would be entitled to the new minimum of $15,610.50. The new minimum would be indexed annually to wage increases. About 12 percent of new beneficiaries in 2020 would be entitled to the new minimum.
To pay for the increased benefits, Rep. Larson's bill lifts the existing payroll tax wage base of $132,900 to $400,000.
And it increases the existing payroll tax for all workers from today's 12.4 percent to 14.8 percent by 2041. The rate hike would be graduated, beginning with a 0.1 percent annual increase starting in 2020.
If implemented alone, the new payroll tax rate "would increase the tax burden of lower-income workers by a larger percentage than that for higher-income workers," CBO says.
But when also incorporating the increased tax base to $400,000, CBO estimates the increase in tax burden would be largest for the wealthiest wage earners.
The bill has been rubberstamped by the Social Security Administration as making the program actuarially sound over the long run.
But the new analysis from CBO calls that determination into question.
"Social Security's chief actuary says Rep. Larson's bill gets us to solvency, but CBO says it doesn't get us there," explained Marc Goldwein, senior vice president for the Committee for a Responsible Federal Budget.
The agencies' differing interpretations are explained, in part, by CBO's larger budgetary analysis.
Specifically, CBO shows Rep. Larson's plan would increase on-budget deficits by "hundreds of billions of dollars in each decade" in the long run because reduced income taxes on Social Security benefits would no longer be allocated to Medicare's Hospital Insurance trust fund.
CBO also says the across-the-board increase in payroll taxes would result in lower income tax revenues.
"These are fixable problems, but the legislation needs changes," said Goldwein. "CBO thinks there is more that has to be done to achieve solvency." That will make it more difficult to push the legislation through Committee, he said.
Rep. Larson's bill would reduce Social Security's 75-year actuarial deficit from 1.5 percent of GDP to 0.1 percent, CBO says.
And after 75 years, it would shrink the annual gap between the program's revenues and its costs. But that gap would thereafter increase, indicating future shortfalls after the 75-year period, CBO said.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
