Ascentxmedia | Istock | Getty Images
WASHINGTON — Millions of Americans look forward to claiming Social Security retirement benefits after years of paying into the program.
But Social Security beneficiaries face the possibility of an across-the board benefit cut of at least 20% in the next decade, due to a looming funding shortfall the program faces.
That can be changed if Congress decides to act before the projected 2034 depletion date for the program’s combined funds.
“You cut that 20%, that’s a crisis,” said Tony Vola, 76, a Social Security beneficiary and member of the AARP Iowa Executive Council. Vola spoke on Thursday during a Social Security forum in Washington, D.C., held by AARP, a nonprofit group representing people ages 50 and up.
“We’ve done our part; it’s time for Congress to do their part,” Vola said.
More from Personal Finance:
Average Social Security benefit may grow by $57 per month in 2024
75% of people age 50 and up worry Social Security will run out of money
Believing these 5 Social Security myths may reduce your benefits
Social Security faces a shortfall between the income it receives through payroll taxes and the benefits it pays through monthly checks. The program’s trust funds help make up the difference.
But in the next decade those trust funds will dry up, projections show. Without that buffer, benefits would be immediately reduced.
Reform is unlikely before the presidential election
The headlines about the program’s funding woes may prompt Americans to suspect Congress is doing nothing to change the program’s situation.
Two top lawmakers who are working on Social Security reform proposals who spoke at AARP’s forum — Republican Sen. Bill Cassidy of Louisiana and Democratic Rep. John Larson of Connecticut — attributed the lack of action in part to stumbling blocks their proposals have met.
“It will not happen before the next presidential election, because President Biden has made it clear that he’s not going to act,” said Cassidy, who spoke first at the forum.
Republican Sen. Bill Cassidy of Louisiana speaks to the press on Capitol Hill on Feb. 10, 2021.
Nicholas Kamm | AFP | Getty Images
During his State of the Union address in February, Biden called for unanimity from both sides of the aisle to protect Social Security and Medicare.
But while Biden called out a proposal from Florida Republican Sen. Rick Scott that would sunset the program every five years, the president failed to mention a separate bipartisan plan he had been briefed on, said Cassidy, one of the lawmakers involved in that effort.
The White House did not immediately respond to a request for comment.
Meanwhile, Larson has put forward a bill, Social Security 2100, in four sessions of Congress to make benefits more generous. That enhancement would be paid for by increasing Social Security payroll taxes, as well as adding an additional net investment income tax, for taxpayers earning over $400,000.
The bill has had broad support among House Democrats, with 208 co-sponsors for a previous version of the proposal. Yet is has yet to make it to the House floor for a vote.
Recent hopes to advance the bill failed after Democrats worried Republicans would say they’re behind a massive tax increase, Larson said Thursday.
“People got nervous,” Larson said. “The bill was scheduled for a vote in the Ways and Means Committee and got pulled, much to my chagrin.”
How Social Security reform proposals would work
The two lawmakers’ proposals take different approaches to achieving long-term solvency to the program.
Cassidy wants to create a new Social Security fund by raising $1.5 trillion that would be invested in the stock market. This would be separate from Social Security’s existing trust funds, which are held in either cash or Treasury bonds.
The new fund would help the program keep up with inflation, which may run at 6% or 7% annually, while Treasury notes typically earn returns of just 1% to 4%, Cassidy said.
“All we’re doing is what every other 401(k), every other national pension plan does,” Cassidy said. “We invest in the strength of the economy as opposed to Treasuries, which are losing value every day.”
As the fund grows, it would ultimately address 70% of Social Security’s shortfall, Cassidy said. The remaining 30% would have to be resolved through bipartisan compromise.
Any changes to Social Security would require 60 votes in the Senate, and therefore would have to have agreement on from both parties.
Ultimately, that kind of compromise cannot happen without leadership from the top, according to Cassidy.
“We need a president to come up with the final language,” Cassidy said.
Rep. John Larson, D-Conn., speaks during an event to introduce legislation called the Social Security 2100 Act. which would increase increase benefits and strengthen the fund, on Capitol Hill on Jan. 30, 2019.
Mark Wilson | Getty Images News | Getty Images
Larson, who recently reintroduced his Social Security 2100 proposal, criticized one idea that has been floated to create study commissions to evaluate the program’s issues.
“There’s only two ways to go with this, you are either going to cut benefits or increase revenues,” Larson said. “You don’t need to study that.”
Larson’s bill would bring the minimum benefit up, which would lift 5 million people out of poverty, he said.
In addition, it would increase all benefits by 2% across the board, while also making benefits more generous for others including long-term beneficiaries, widows and widowers, and dependent children who are students.
The changes would be the first enhancements to Social Security in 52 years, according to Larson, who said he expects the next Democratic House speaker will make the proposal a priority.
In the meantime, it’s up to voters to put pressure on Congress to act, Larson said.
“Everybody wants to say how much they love Social Security,” Larson said. “You do? Where’s your bill? Where’s your proposal?”
Without action on Capitol Hill, Social Security beneficiaries are left wondering what could happen if benefits eventually do face a shortfall.
“If you take any cut away from any of us who are currently on Social Security, it will have a major effect on us, not just us, but our families,” said Alfred E. Mason, 83, who is the Louisiana state volunteer president at AARP. Mason began paying into the program in 1958 with his first job.