Are Social Security Benefit Increases Coming?
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Most Social Security headlines (including many of my own) have to do with the fact that Social Security is going to run out of money without tax increases or benefit reductions. So, it may seem that benefit increases would be out of the question. However, it may surprise you to learn there is widespread support for certain types of benefit increases, even if it means higher taxes.
Different kinds of benefit increasesWhen we say "benefit increases," this phrase can mean several different things. For example, a benefit increase could mean:
- An across-the-board increase for all retirees. One example would be a $65 per month increase to all beneficiaries, regardless of income, age, or any other factors.
- An increase in the way cost-of-living adjustments (COLA) are calculated. Social Security currently uses the consumer price index, or CPI, to calculate benefit adjustments. However, some of the costs affecting seniors (such as healthcare) typically increase at a faster rate. Adjusting the COLA to reflect seniors' costs would ensure that purchasing power of benefits remains the same over time.
- An increase in the minimum benefit for lower-income retirees. The current Social Security benefit for a lifetime minimum wage worker is $8,230 per year, well below the $11,670 poverty line. One popular proposal would increase the minimum Social Security benefit so that no retiree who paid into the system for 30 years would retire in poverty.
Support of the peopleAll three of these forms of increases are supported by the majority of the American people.
According to a study (link opens PDF) by the National Academy of Social Insurance (NASI), increasing the COLA is the favorite type of increase, supported by 80% of survey respondents. And, this support was spread evenly among all income levels, age groups, and political affiliations. Similarly, increasing the minimum benefit is widely supported (72% of the population), with consistent support among all demographic groups.
Across-the-board increases are the least-favored solution. Still supported by a majority (62%) of the population, there's a significant drop in support of this among individuals who earn $100,000 or more (48%) and Republicans (54%). So, an across-the-board increase would probably be the more difficult type of increase in terms of gaining political traction as part of a reform package.
How much would it cost?Increasing Social Security benefits would certainly add to the program's funding requirements, but not by as much as you may think. And, as long as the revenue-generating changes made to Social Security make up for it, it's possible to increase benefits while fixing the current funding problem at the same time.
According to the NASI survey I referenced earlier, here's how certain Social Security increases would affect the projected funding shortfall.
- An across-the-board $65 per month increase in Social Security benefits would add 29% to the funding shortfall.
- Increasing the COLA to accurately reflect seniors' cost of living would add 14%.
- Increasing the minimum benefit so no worker who pays into Social Security for 30 years ends up retiring in poverty would add 9% to the shortfall.
However, the other potential changes would have even more of an effect on Social Security's funding gap.
- Gradually eliminating the Social Security tax earnings cap over a 10-year period would fix 74% of the shortfall.
- Raising the payroll tax rate from 6.2% to 7.2% for employers and employees over a 20-year period would tax care of 52% of the projected shortfall.
Of course, these are not the only two options for increasing Social Security tax revenue, and there are other options as well, such as raising the retirement age or means-testing Social Security benefits. However, the point is that as long as the mathematics work out to at least 100% of the shortfall, Social Security can be increased and fixed at the same time.
For example, the survey found that the most popular package of changes would eliminate the earnings cap (-74%) and raise the payroll tax (-52%), while also increasing the COLA (+14%) and minimum benefit (+9%).Adding these percentages together, it's easy to see how this hypothetical reform package would create adequate funding for promised Social Security benefits as well as the proposed increases.
Will we see increases?I'm pretty confident that an increase in the minimum Social Security benefit amount and a modification to the cost-of-living adjustment will be a part of any reform package that makes its way through Congress. This type of increase has plenty of support from the American public throughout all age groups, income levels, and across both sides of the political spectrum.
An across-the-board increase is another matter, and largely depends on who's in the White House and which party is in control of Congress at the time of the reforms. However, with the level of importance most people place on the Social Security program, higher Social Security benefits for all Americans once a reform package passes wouldn't surprise me too much.
The article Are Social Security Benefit Increases Coming? originally appeared on Fool.com.
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