Both parties are well aware of the crunch. As usual these days, they're gridlocked on what to do.
Republicans think the problem can be solved with just two words: stingier and shorter. Their proposals would hit future recipients with the double whammy of lower benefits and a later retirement age (an idea Buffett has also floated).
Democrats have lined up solidly behind a bill that goes in the opposite direction. It increases payouts by two percent and sweetens the formula for cost-of-living adjustments (COLAs). The money to pay for it would come from higher payroll taxes, especially on the biggest earners.
Payroll taxes are currently not collected on wages greater than $132,900. The Democratic bill would tax all earnings over $400,000. The rate itself (levied on both workers and employers) would rise 0.1 percent per year from 2020 to 2043, going from the current 6.2 percent to 7.4 percent. The system's actuaries say these changes would keep the fund solvent into the 2090s.
All well and good, but adding a Wall Street boost could make the reform even better. The tax increase could be smaller. The trust fund's solvency could be extended into the 22ndcentury. Millions of workers without workplace retirement plans could reap some of the same stock market gains as workers who have them.
Alicia H. Munnell lives and breathes retirement policy. It was her calling card for a top job in the Clinton Administration. Since then she's been a professor at Boston College, where she founded and directs its Center for Retirement Research. In 2006 she co-authored the definitive book Social Security and the Stock Market.
It's a probing, scholarly work. It doesn't minimize the risks, including the political risks of putting the government in charge of investment decisions. It cites hundreds of facts, including these:
"After all, stocks yield 7 percent after inflation and bonds only 3 percent."
"Two types of government pensions in the United States already invest in equities with no apparent ill effects," the Thrift Savings Program for federal employees and state and local pension funds.
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