The Fiscal Cliff package ushered through Congress last week has left just about every taxpayer with a holiday hangover, thanks in large part to the temporary Social Security payroll tax cut that was not extended. Aside from any worthy debate over the wisdom of the two year relief on payroll tax rates, what the demise of this policy highlights is the absurdity of those in Washington who refuse to reform the entitlements that these taxes fund.
The end of the holiday, and shock of the payroll tax hike, makes clear the pain workers feel when they lose money from their paychecks. Particularly in the midst of a recession, even $50 a week can be sorely missed when it comes to utility bills, groceries, or supporting an out-of-work spouse.
Yet, it is the complete lack of entitlement reform, or even a discussion of Social Security retirement age adjustment or means testing for Medicare, that makes the sacrifice workers are now making an even more bitter pill to swallow.
Absent reform, the new revenues are essentially futile – dumped into programs that are bound to collapse under their own weight, and unlikely to do much good for those sacrificing their hard-earned money right now.
In fiscal year 2012 alone, Social Security spending totaled an incredible $773 billion, almost 5 percent of the nation’s GDP.
Using Congressional Budget Office (CBO) numbers, the Heritage Foundation explains just how dire the issue is:
“In 2011, Social Security incurred a $45 billion deficit. According to the 2012 trustees report, the expected average annual gap between Social Security spending and the program’s payroll tax revenue is $66 billion between 2012 and 2018.”
When revenues taken in cannot possibly cover the growing expenditures of the program, Americans who have worked and paid into the system could be left out in the cold. The CBO warned in October:
“By 2030, Social Security outlays will be about 6 percent of gross domestic product and will exceed dedicated tax revenues by about 20 percent. As a result, under current law, resources available to the Social Security program will become insufficient to pay full benefits in about 20 years.”
Reforming Social Security is something that makes lawmakers tremble, but it is absolutely vital. Fortunately, creative ideas for reducing costs and expanding choice for prospective retirees are being offered by some leaders in Congress. In the House, Paul Ryan’s proposal would enact the following reforms:
- Preserves the existing Social Security program for those 55 or older.
- Offers workers under 55 the option of investing over one third of their current Social Security taxes into personal retirement accounts, similar to the Thrift Savings Plan available to Federal employees. Includes a property right so they can pass on these assets to their heirs, and a guarantee that individuals will not lose a dollar they contribute to their accounts, even after inflation.
- Makes the program permanently solvent – according to the Congressional Budget Office [CBO] – by combining a more realistic measure of growth in Social Security’s initial benefits, with an eventual modernization of the retirement age.
In the Senate, Sens. Rand Paul (KY), Mike Lee (Utah), and Lindsay Graham (SC) have brought forth the Social Security Solvency and Sustainability Act, which they assert could create a solvent social security system by lowering benefits for those with higher incomes, and gradually increasing the retirement age, among other initiatives.
What simply cannot continue, is forcing taxpayers to throw their earnings away into programs politicians refuse to properly manage, when they could do better saving and investing on their own.
In the 133th Congress, it will be imperative that lawmakers put in the time to fix Social Security so working men and women have a fighting chance to get back the money which gets taken out of their paychecks every week.