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Home / Business / This very popular social insurance proposal is back and it can pass the house – The Motley Fool

This very popular social insurance proposal is back and it can pass the house – The Motley Fool

This may come as a little surprise to many of you, but America's most important social program is on the brink of major problems. Although social security schemes currently hold more than 22 million people out of poverty, the ability to provide a financial basis for senior citizens, long-term disabled and survivors of deceased workers may soon be affected.

According to the 2018 Security Management Board report, ongoing demographic changes that include baby boomers retirement, increased decades of life, increased revenue revenue, and lower lower fertility rates will push the program off to generate net cash surpluses for net cash flows very soon .

The good news is that there are nearly $ 2.9 trillion in asset reserves to help counteract these outputs over a period of time. But by 2034, this $ 2.9 trillion in cash surplus is expected to be gone.

  A person grabs his social security card smoothly between their thumb and index finger.

Image source: Getty Images.

If social security were to exclude its assets, it would not go bankrupt or be insolvent. But that means that the existing payout plan is unsustainable. Without excess assets, social security will be forced to reduce their monthly payments to eligible beneficiaries by as much as 21

% between 2034 and 2092, provided that Congress does not earn additional revenue or cut expenses. On the basis of the total dollar, the Trustees consider that the program will run a $ 13.2 billion deficit between 2034 and 2092 – a deficit that expands every year, it is not processed.

Something should clearly be done to solve the security security's upcoming cash crunch. The big question has always been what something should be. The answer may have been posted this week.

Social Security Act 2100 is back, with great support

Rep. John Larson, D-CT, first introduced the Americans to the Social Security Act 2100 back in 2014, with his proposal for limelight, but little support in Congress. It was then reintroduced in 2017 with the support of 156 democrats in the house, but again without a formal vote on the house floor. Now, with Democrats controlling the House and more than 200 members of Larson's own party acting as sponsors, the Social Security Act 2100 is back – and this time it can get some noise.

The Social Security Act 2100 aims to increase revenues so that no benefit cut must be made in the long term (ie the next 75 years). It also intends to extend the benefits to current and future recipients. According to Chief Actuary Stephen Goss, the estimated $ 13.2 billion budget deficit between 2034 and 2092 will be replaced by a net profit of $ 2.1 trillion – a $ 15.3 trillion swing.

  A social security card under a gable with an American flag in background.

Image Source: Getty Images.

What does accurate social security 2100 law entail? Let's take a closer look at the seven key points of action.

  1. An increase in the premium insurance amount (PIA) to 93% from 90% begins in 2020: The increase in the PIA formula will have a small but positive upward effect on what seniors are paid from the program.
  2. Change COLA calculation to KPI-E from KPI-W: The consumer price index for city dwellers and office workers (KPI-W) has been the program's inflation tank since 1975. But since it tracks the consumption habits of labor and city workers in the labor market, in Instead of the elderly representing the majority of beneficiaries, it results in underweighting key spending categories for the elderly, such as medical care and housing – and therefore a lower cost adjustment (COLA). The Consumer Price Index for the Elderly (CPI-E) adjusts this by capping COLA increases to household expenses with the elderly aged 62 years and older.
  3. Increase the special minimum PIA for eligible retirees or disabled workers starting in 2020: Providing a special minimum insurance amount is a fancy way of saying that minimum benefits paid by the program will be increased. The current minimum payout is well below the level of poverty, so this is a direct attempt to reduce older and disabled poverty rates.
  4. Adjust the modesty of social security social security thresholds starting in 2020: Social security taxation was introduced in 1983 and expanded in 1993. It allows up to 50% of the benefits to be taxed for a single taxpayer whose adjusted gross income ( AGI) and half of the benefits exceed $ 25,000 (or $ 32,000 for a couple of joint applications). Up to 85% of the benefits are taxable when AGI plus half the benefits topped $ 34,000 for a single file or $ 44,000 for a pair of archives jointly. These income thresholds are never adjusted for inflation. The 2100 Social Security Law will increase this threshold and create a single tax point of up to 85% for single filers and common filers over $ 50,000 and $ 100,000, respectively.
  5. Repeat Wage Tax on Income Over $ 400,000: Currently, all work income between $ 0.01 and $ 132,900 is subject to Social Security's 12.4% payroll tax, with a labor income above $ 132,900 except from payroll tax. Larson's proposal aims to create a moratorium on taxation between $ 132,900 and $ 400,000, with a 12.4% wage tax once again earned on labor income over $ 400,000. Over time, this moratorium will shrink and eventually disappear, as today's $ 132,900 capacity increases with the National Average Wage Index each year (as long as COLA is a positive figure).
  6. Gradually increase the payroll tax for all workers to 14.8%: Over the next 24 years, the Tax Act will increase the payroll tax by 0.1% per year and push it from 12.4% to 14.8% . Remember that only self-employed people pay the full payroll tax. If you are employed by someone else, your employer covers half of your liability. This would mean an increase of 0.05% per year, or an increase of 1.2% over 24 years for most workers.
  7. Combining OASI and DI Trusts into one fund: Finally, and mostly for simplicity, (OASI) and the Disability Insurance Trust (DI) will be combined into a single trust, OASDI.
  A democratic donkey and republican elephant squaring up on an American flag.

Image Source: Getty Images.

A usable solution with one central problem

On the surface, the Social Security Act makes everything you want to see a proposal do. It ensures that benefits are not cut for current or future retirees, expands benefits for those with the lowest income increase, and helps simplify the program. With more than 200 co-sponsors for the bill in the House, only 218 votes were needed for passing, and Rep. Larson was set to become Chairman of the Subcommittee on Social Security, Ways and Means. quite simple.

But there is only one problem: A bill must pass both congress halls and put a president's signature (in most cases) into law.

The Senate is still under the control of the Republican Party, who sincerely sees a solution to the social security's imminent cash crunch differently. Instead of increasing or changing the payroll tax, GOP prefers to gradually increase full-time retirement age to make up for life expectancy.

Your full retirement age is the age at which you qualify to receive your full monthly payment, as determined by your year of birth. Currently set to peak for 67 years for those born in 1960 or later, the Republicans have proposed to gradually increase this to as high as 70 years. This would require future generations of workers to wait longer to take full advantage or to accept a steeper monthly payout reduction by demanding earlier. Either way, it reduces the lifetime payout and thus saves the program money.

The Republics also prefer the chained CPI as a measure of inflation, rather than the CPI-E. The chained CPI, which is already indexed to federal income tax credits and credits, takes into account the idea of ​​a replacement perspective. For example, if the price of a good, say steak, has risen sharply in price, Chained KPI assumes that consumers will switch to cheaper but similar foods, such as chicken or pork. If the chained CPI was implemented, lower COLAs would probably occur and also save the program money in the long run.

  President Trump crosses the south side of the White House.

Image source: Official White House Photo by Andrea Hanks.

To start, President Trump would be unwilling to sign legislation that would directly change privacy. Trump has stated that the implementation of direct changes in social security is linked to political suicide without using the exact words. Rather, the president relies on his stamp of taxation and the Jobs Act to create jobs, grow wages, and generate more in the way of wage income. Essentially, Trump indirectly favors social security corrections.

Finally, what we are left with is an abundance of simple and complex solutions to fix social security. Many of them work, but they are all really one-sided in terms of support. Given that 60 votes are needed in the Senate for reviewing any changes in social security, a two-sided approach will be necessary for any real change to take place. In other words, even though the National Insurance Act 2100 passes the house, it is dead upon arrival when it reaches the Senate.

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