The Social Security 2100 Act

"Social Security 2100 Act"

Endorsement

This proposal is a comprehensive package of tax increases and benefit cuts which the Chief Actuary of the Social Security Administration projects will make the system solvent until the end of the century.  We do not endorse plans which provide benefits to voters at the expense of non-voters.  This approach will only destablize the system.

How Does It Work?

There is a lot here.  It has seven different points which move in multiple directions.  In general it rewards current voters and penalizes future workers (non-voters).

The plan provides increasing tax rates, mostly on the rich and future workers.  The change would broaden Social Security's revenue base to all income for high income earners.  It also phases in higher payroll taxes over 20 years.  It subjects all wages to payroll taxes. 

The system collects additional revenue by diversifying the Trust Fund.  The expected increase in the return on the Socaial Security Trust Fund is unrealistic.  The average 45 year rolling return of the S&P (100% invested) is between 4 and 6%.  The proposal expects returns of 6.5%.

The plan rewards current retirees with higher COLAs and protected existing PIAs. 

Strengths

The plan dedicates sufficient revenue to the program in order to pay its bills.  Allowing the Social Security Trust Fund to earn higher returns in exchange for more risk makes some sense.  Without knowing how the system will manage increased risk, it is hard to call this idea a complete strength.

Weaknesses

The lack of information on this plan is over-whelming.  The only place where you find the details is in the letter from the Chief-Actuary.  Lack of disclosure is never a good thing. 

This plan generally replays the 1983 agreement on Social Security Reform.  It rewards current voters at the expense of non-voters.  A typical kid who is 11, faces 10-15% higher lifetime payroll costs. 

Distortions

 "This proposal keeps Social Security strong through the 21st Century by ensuring millionaires and billionaires pay into the system like every American"

The plan will greatly increase taxes on future workers, who have no vote today.  This plan is an agreement that we make with ourselves that our kids will pay the taxes that we will not.  We are agreeing that our grandchildren will pay 15.3% in payroll taxes - when we will not.

 "This proposal keeps Social Security strong through the 21st Century by ensuring millionaires and billionaires pay into the system like every American" 

 This proposal would do the exact opposite.  Today, millionaires and billionaires pay into the system like every other working American covered by Social Security.  This plan would mean that they would pay into Social Security unlike every other American.  Unlike every American, millionaires and billionaires would contribute without any meaningful increase in benefits. 

" investing a portion of the reserve back into the American economy to double the rate of return on assets held by the Trust Fund" 

This statement is absurd.  Frankly it is embarassingly bad, and makes me question the integrity of the entire plan.  The historic return of the Stock Market is between 4 and 6% real.  In order to double the return of the Trust Fund with a 25% investment in equity, those equities would have to return more than 17% real.

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