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President-elect Donald Trump has said he will preserve Social Security, though if he and Congress do nothing to fix the funding, the financial reckoning will be huge — as much as $11.4 trillion down the road.
The last time Congress changed Social Security in a significant way with a series of benefit cuts and payroll tax increases was in 1983 under President Ronald Reagan.
Back then, the federal government needed to fill a funding gap of about 1 percent of taxable workers' wages. By the time Social Security's trust funds are projected to run out in the early 2030s, the federal government will have to plug a hole of more than 3 percent, according to estimates by Charles Blahous, a senior research fellow at George Mason University's Mercatus Center.
"Just to keep the system afloat from year to year at that point they would have to inflict near-term pain over three times as severe as was the case in 1983," Blahous said.
Though the Trump transition team has yet to make any proposals about Social Security, one Republican lawmaker has detailed how he would change it.
Congressman Sam Johnson, an 86-year-old Texan who represents the Dallas suburbs and is chairman of the House Ways and Means Social Security Subcommittee, unveiled a bill in December in the last Congress that aims to fix the program without raising payroll taxes.
Johnson's proposal would increase the age to receive full retirement benefits from 67 to 69, slow the growth of benefits by using a different measure of inflation for cost-of-living adjustments and cap payouts to high-income workers.
"I urge my colleagues to also put pen to paper and offer their ideas about how they would save Social Security for generations to come. Americans want, need and deserve for us to finally come up with a solution to saving this important program," Johnson said in a statement.
Social Security Administration officials said Johnson's plan would fix the funding situation, at least until 2091, without raising payroll taxes. Typically, Congress has shored up the finances of Social Security with a series of benefit cuts and tax increases.
Under current law, just 79 percent of scheduled benefits are projected to be payable to each recipient in 2034, once the trust fund reserves are depleted. Under Johnson's proposal, Social Security trust funds would remain solvent and be able to pay out 100 percent of benefits to retirees under the SSA's 75-year projections.
Advocates for increasing Social Security retirement benefits, which provide about 34 percent of the income for elderly Americans, oppose Johnson's plan because of its cuts.
For example, under Johnson's plan, average middle-income workers would see their annual benefits, calculated in 2015 dollars, drop from $18,576 now to $17,076 in 2030, based on an SSA analysis.
"Not only does the Johnson plan deeply cut benefits, it radically transforms the program so that it would, when fully phased in, no longer be a pension plan replacing wages but rather operate in the manner of a flat, subsistence-level [grant,] which would provide recipients with an amount unrelated to earnings and contributions," said Nancy Altman, co-director of Social Security Works, which advocates to increase Social Security.
Raising the age to receive full retirement benefits from 67 to 69, as Johnson proposes, also would affect many retirees since most people claim benefits before full retirement age, typically at 62, the earliest age possible. (See chart below.)
Johnson's plan has not gained much traction in Congress. The bill did not have any co-sponsors last year and Johnson has yet to introduce it in the new Congress.
The clock is ticking. Social Security's income is projected to exceed its cost through 2019, but then the program will start tapping its reserves, according to the Social Security and Medicare Boards of Trustees' annual report.
"The politics of Social Security reform is not getting any easier," Blahous said. "When the trust funds run out, it will be too late."