The U.S. social security system is only about six years away from a full-scale funding gap, and congressional discussions are on the rise around how to avoid an automatic downward revision of benefits. Several parliamentarians have proposed different programmes that focus on increasing taxes, limiting high benefits or introducing capital market revenues in a more radical manner.
Increasing wage tax revenues
The most immediate idea at present is to increase the coverage of high-income groups.
Republican Republic Senator Bernie Moreno of Ohio and Democrat Elizabeth Warren of Massachusetts recently proposed the removal of the current wage tax cap. Both cited Peter Peterson Foundation data to suggest that this adjustment could increase the income of social security projects by about $3 trillion over the next 10 years.
Another programme comes from Democratic Senator Sheldon Whitehouse and Congressman Brendan Boyle. The programme did not completely lift the cap, but instead raised the wage tax threshold to $400,000, while including investment earnings.
Debt to establish investment funds
Another route seeks to avoid placing immediate costs on taxpayers and recipients.
Senator Bill Cassidi of the Louisiana Republican Party and Senator Tim Kane of the Virginia Democratic Party proposed that the federal Government borrow $1.5 trillion to set up an investment fund, allocate risk assets such as equities and, in the 75-year cycle, obtain higher returns than United States Treasury bonds to support social security payments.
However, a recent simulation by the Boston College Retirement Research Centre concluded that the programme was not sound. The study noted that if the stock market continues to be close to historical average returns over the next few decades, there may theoretically be sufficient returns; however, the stock market is more volatile, the return path is not smooth and the results do not always cover the social security gap.
Limiting high benefits and personal accounts
In addition to tax increases and investment programmes, condensed expenditures have been reopened. It was mentioned that one idea was to set a ceiling on high benefits, adjusted for marital status and age. For example, the annual benefit ceiling for single recipients can be set at $50,000, and the combined benefit ceiling for retired couples at age 62 can be set at $70,000.
At a Senate hearing in March this year, Republican Senator Lindsay Graham expressed support for the idea of limiting the maximum benefit. This means that, in future negotiations, “reserved basic benefits, compressed high-end receipts” could be one of the compromise directions.
In addition to the above-mentioned programmes, some conservatives are promoting the transfer of more retirement savings to personal investment accounts. Texas Republican Senator Ted Cruz mentioned that the conservatives in the United States had long hoped to draw on the Australian pension system and that employers would contribute to personal investment accounts on a continuous basis to reduce public dependence on government pensions.
Additional information:The “Trump Account” referred to in the text remains a political initiative, and the original text does not give details of the formal legislative process that has been put in place.