Government and policy group officials testified before the Senate Budget Committee to address the looming threat of potential Social Security Trust Fund insolvency as lawmakers continue to debate tradeoffs of differing philosophies on keeping the program funded.
In his opening statement at a July 12 hearing, Senate Budget Committee Chair Sheldon Whitehouse, Democrat of Rhode Island, warned that absent congressional action, “Social Security will only cover 80% of its projected benefits by 2035.” In advocating for the importance of saving what he described as “the nation’s most effective anti-poverty program,” Whitehouse said there are only two options on the table for keeping Social Security solvent: raising revenues through increased taxes, or cutting spending.
“If Republicans stand by their commitment not to cut benefits, they must safeguard Social Security solvency by raising revenue,” Whitehouse said to close his opening remarks. “There is no other way to honor our promise to older Americans to retire with dignity.”
He asked witness Stephen Goss, chief actuary of the Social Security Administration (SSA), if this was an “arithmetic truth.” Goss responded in full agreement, saying there are “no options” outside of those two paths given how the program is funded under current law through payroll taxes.
Social Security is not financed, however, through investment income. Amy Hanauer, executive director at the Institute of on Taxation and Economic Policy, testified that “the wealthiest Americans benefit the most” from this framework, as those making over $1 million receive much of their income from investments.
Ranking Member Chuck Grassley, Republican of Iowa, cautioned in his opening statement that inaction “means cuts for everyone” and pointed blame at President Biden for failing to “provide any leadership on this issue.”
“His budget includes $4.7 trillion in tax hikes, but not a single proposal to extend the solvency of the Social Security trust fund,” said Grassley.
Grassley was referencing Biden’s proposed fiscal 2024 budget rolled out earlier in Spring. Then, the Biden administration reaffirmed its position against stripping away from the program. “The Administration is committed to protecting and strengthening Social Security and opposes any attempt to cut Social Security benefits for current or future recipients,” according to Biden’s budget.
As far as specifics, the president mostly focused on allocating an additional 10% ($1.4 billion) to the SSA for staffing and IT purposes compared to 2023 levels. “These funds would improve customer service at SSA’s field offices, State disability determination services, and teleservice centers for retirees, individuals with disabilities, and their families.”
Republicans in the House were not satisfied by the administration’s Social Security portion of the budget. The Republican Study Committee Budget and Spending Task Force claimed in their own fiscal 2024 budget that “ignoring” the fact that the program costs more than it brings in “will lead to the largest across-the-board cuts to current Social Security retirement beneficiaries in history.” They projected that benefits would be cut by 23% in 2033.
The White House fired back in a June 14 statement from Press Secretary Karine Jean-Pierre, accusing Republican lawmakers of wishing to raise the retirement age to cut costs. “This is exactly what Republicans in Congress pledged not to do just months ago at the President’s State of the Union address,” read the statement.
Kathleen Romig, director of Social Security and disability policy at the Center on Budget and Policy Priorities, tackled this in her opening comments. “Proponents of raising the retirement age often justify the proposal by pointing to life expectancy gains, effectively arguing that people can expect to receive benefits for more years than previous generations did,” she said. “However, low-income beneficiaries typically have not seen the life expectancy gains that higher-income people have experienced.”
Returning to Grassley’s earlier comments, he criticized Democratic proposals for funding Social Security for being “tax-heavy messaging bills and not real solutions. These proposals would push the top marginal tax rate above 50 percent, and many would break the President’s promise not to raise taxes on anyone making less than $400,000.”
One such bill Grassley could be referring to is the Social Security Expansion Act (S 393) introduced by Vermont Independent Bernie Sanders and Massachusetts Democrat Elizabeth Warren. The proposed legislation would impose a 12.4% tax on investment income earned by individuals making $200,000 or more, or married couples who bring in $250,000 or more. Under current law, the payroll tax that goes into Social Security has a yearly income cap. For 2023, the cap is $160,200. The Sanders and Warren bill would impose the full Social Security payroll tax to all income over $250,000 and seeks to keep the program solvent for the next 75 years.
Andrew Biggs, senior fellow at the American Enterprise Institute, testified against the idea of bankrolling Social Security “entirely” through tax increases on the wealthy. He argued this “approach: first, is inconsistent with Social Security’s history and philosophy; second, is out of step with how government pensions around the world are funded; third, leaves little on the table to address the federal government’s massive long-term fiscal gap; and fourth, is unnecessary, given the already record-high levels of Social Security benefits and total retirement incomes and record-low rates of poverty in old age.”
Grassley during the question portion of the hearing asked Congressional Budget Office Director Phillip Swagel how increasing the Social Security payroll tax rate or eliminating the exemption for investment income would impact on-budget revenues. Swagel answered that this would have a ripple effect.
“Higher payroll taxes would mean lower take-home pay for workers,” said Swagel. “That in turn would affect the amount of income in the economy, and income generated by income taxes and payroll taxes. That would affect the overall economy.” He suggested that is just an example of an immediate consequence, and that a deeper analysis would be required.
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