The U.S. Senate is currently tasked with passing the proposed Social Security Fairness Act. This bill is spear-headed by Senate majority leader Chuck Shumer of New York. It has already passed the House of Representatives with a 327-75 majority.
The Social Security Fairness Act comes at a time of concern as the 2024 Social Security Board of Trustees has reported that the social security trust funds will be depleted by 2035. By that time, it is projected that the system will have exhausted all of the cash reserves so it will only be able to pay out benefits from year-to-year social security taxes. Additionally, retirees will only receive 79% of their scheduled benefits.
The Government Accountability Office (GAO) stated that the Old-Age and Survivors Insurance (OASI) program has been paying out more money than it has received from taxes since 2010. Needless to say, this situation has been forthcoming as the worker-per-retiree ratio has dropped to 3-1 from its 5-1 ratio back in 1960. By 2030 it is projected to drop to 2-1.
Shumer says that passing this bill is the right thing to do for teachers, nurses, first responders and postal workers. The goal of the bill is to stop the reduction of social security benefits of local and state employees who are receiving public pensions in the form of the Windfall Elimination Provision (WEP) & the Government Pension Offset (GPO). These programs were created in the late 1900s to establish a comparable reimbursement for local and state employees’ contributions to social security. The Social Security Fairness Act aims to eliminate these programs.
There is a decent amount of skepticism pitched against this bill and the proposed reforms. Members of Congress are concerned that this expansion of social security will exacerbate and prolong the current issues with the program. Perhaps the largest of concerns is the cost of the bill that the Congressional Budget Office has estimated will cost around $200 billion over the next 10 years. As it stands, the bill does not outline a way to offset this cost.
In the fiscal year of 2023, social security was the largest government spending program – consuming 21% of the overall spending budget. This percentage estimates around $1.3 trillion of the budget funds used by social security spending.
The reality of this issue is that U.S. social security has been in a persistent deficit since the Great Recession of 2007-2009. The number of retirees has only increased over time, while the number of workers has failed to offset this steady incline. Young earners are perhaps incurring the initial blunt of this dilemma as they are immediately subjected to payroll taxes upon entering the work force while receiving wages that are too low to allow for independent saving.
The last reform to social security in the U.S. happened in 1983. The country was experiencing high inflation, high unemployment rates and mass wage stagnation. In response, the reforms included raising the retirement age from 65 to 67, increasing payroll taxes by 1.6%. This led to the program upholding a surplus for three decades until 2009.
Have your congress members voted for or against this bill? How will your retirement plans be effected by the future of social security? Be sure to stay up-to-date on the issue.
RESEARCH:
AARP
Government Accountability Office
Social Security
Tax Foundation
CNBC
The Hill
American Postal Workers Union