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Expanding Social Security Benefits Is a Fairy Tale

By Sean Williams – Updated Apr 3, 2019 at 10:19PM

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While it sounds great on paper, there are four reasons benefit expansion isn't realistic.

The 116th Congress, which is only two months old, has kicked off with a bang. Over this period, two Social Security reform proposals have made their way to the floor that are designed to not only shore up the program, but to also expand benefits for those who need it most.

Last month, Rep. John Larson (D-Conn.) reintroduced the Social Security 2100 Act for the third time, with more than 200 Democrat supporters from the House this go-around. This complete overhaul of Social Security proposes reinstituting the payroll tax on earned income above $400,000, switching the program's inflationary measure to the Consumer Price Index for the Elderly (CPI-E), and adjusting the income thresholds associated with the taxation of benefits, beginning in 2020.

Shortly thereafter, newly declared 2020 presidential candidate Sen. Bernie Sanders (I-Vermont) reintroduced the Social Security Expansion Act (also for the third time). Sanders' bill aims to collect payroll tax on earned income above $250,000, switch the program's inflationary tether to the CPI-E, increase benefits for low-lifetime earners above the federal poverty level, and provide an across-the-board payout increase for all beneficiaries.

A Social Security card wedged between cash bills.

Image source: Getty Images.

Sorry, folks: Expanding Social Security benefits isn't realistic

With more than three out of five retired workers currently reliant on Social Security for at least half of their monthly income, and over 80% of working-age Americans projected to be lean on Social Security in some capacity to make ends when they retire, Larson and Sanders view the expansion of benefits as a necessity.

But the reality is that it's a long shot for Social Security benefits to be expanded. Here are four reasons you shouldn't plan on receiving anything above and beyond your estimated payout, inclusive of cost-of-living adjustments.

1. A $13.2 trillion shortfall (and growing) first needs to be dealt with

The first logistical issue is that lawmakers aren't starting discussions about benefit expansion from a level surface. Rather, they're starting from well below par. According to the Social Security Board of Trustees' 2018 report, the program is facing a cash shortfall of $13.2 trillion between 2034 and 2092. Mind you, this estimated shortfall simply describes the amount of needed capital to sustain the existing payout schedule. Translation: Social Security needs $13.2 trillion raised over the next 75 years before benefit expansion can even be a consideration.

In addition, the longer lawmakers wait to act on fixing Social Security, the bigger this cash shortfall grows. Between 2015 and 2018, this figure has increased from $10.7 trillion, to $11.4 trillion, to $12.5 trillion, and now $13.2 trillion, respectively. Not knowing how fiscal and monetary policies will impact economic growth and the Social Security program over the next 75 years, coupled with this worsening cash deficit, leads me to believe that benefit expansion is much more of a long shot than Rep. Larson and Sen. Sanders realize (assuming these projections are somewhat accurate).

A judge's gavel sitting atop two Social Security cards, with an American flag in the background.

Image source: Getty Images.

2. There aren't enough votes to expand benefits

Secondly, any sort of overhaul to the Social Security program is going to require 60 votes in the Senate, and neither political party has had a supermajority (60 seats) in 40 years. This means enacting an expansion of Social Security benefits would require bipartisan support, which frankly isn't there.

Republicans on Capitol Hill have made it crystal clear that they have no intention of supporting any Social Security reform measures that increase taxation on high-income earners. Likewise, Democrats have been unwilling to compromise on any Social Security legislation that calls for a gradual increase to the full retirement age. With both parties stuck to their core ideals and unwilling to find any common ground, benefit expansion is pretty much off the table.

3. The rich are already paying their share

Although I'm sure it's an extremely unpopular opinion, expanding benefits on the heels of requiring the wealthy to pay substantially more may not make much sense.

On the one hand, the amount of earned income that's been exempted from the 12.4% payroll tax, which caps at $132,900 in earned income this year, has quadrupled from around $300 billion in 1983 to $1.2 trillion by 2016. This paints a picture that the wealthy are getting by without contributing their fair share to the program.

But here's the catch: This payroll tax cap exists because Social Security also limits what it'll pay out monthly at full retirement age ($2,861 in 2019). In other words, the rich are paying their respective fair share into the program based on the maximum amount they can receive per month, as of 2019. This makes the idea of raising the payroll tax cap all the more contentious.

A senior man counting fanned cash bills in his hands.

Image source: Getty Images.

4. Inflationary tethers miss the mark

Last but not least, proposals to change Social Security's inflationary tether from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the CPI-E may not yield the desired results.

Presumably, switching to the CPI-E, which measures the spending habits of households with persons over the age of 62, will result in a more accurate inflationary reading, and therefore higher annual cost-of-living adjustments. The CPI-E would more accurately account for the medical care and housing costs that the CPI-W tends to underweight. Over time, this should result in beneficiaries receiving more each month.

But there are two problems with this assessment. The first is that the CPI-E still fails to account for some large medical expenses, such as Medicare Part A. This would likely perpetuate the loss of purchasing power that retired workers receiving benefits have been contending with for nearly two decades.

And second, as outlined by the Government Accountability Office, the CPI-E is an "experimental index." It would take time and quite a bit of money to improve the methodology behind the CPI-E calculation.

Long story short, as much as expanding benefits might sound great on paper, it's simply not feasible at the moment.

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