The bipartisan pair of Senators has floated a game-changing plan to resolve the issues of the insolvency crisis. They stated that within a decade, this solution could help in saving the Social Security program. In a recent post about Washington, a proposal was announced by Democratic Senator Tim Kaine and Senator Bill Cassidy to establish an alternative model of funding for the safety net program, which supplements the Trust fund of the program with a new diversified pool of investments. In this blog, we will look at some key aspects and potential impacts.
Game-Changer or Setback?
The potential reduction of the Social Security Trust Fund is the major concern on Capitol Hill. The recent report from the SSA warned that the program is continuously facing financial issues. This proposal comes as the Social Security Trust fund is anticipated to be unable to provide 100% of scheduled benefits by 2033.
Insolvency does not mean the total stoppage of the program because the future payments are dependent on what is collected by the department in payroll taxes each year. This could fail to provide the scheduled benefits, and there would be possible reductions in the benefits, or there may be an increased tax rate that is needed for the program.
Key Aspects of the Proposal
This new proposal aims to prevent a reduction in the social security benefits by creating an alternative investment fund alongside the existing Social Security trust Fund.
- This new fund will be invested in a more diverse portfolio of assets and stocks, which ensures a higher return than the current trust fund that is invested in US government bonds.
- These senators believe that this strategy helps in generating enough funds over a long period; they suggested a 75-year timeline to avoid a reduction in benefits.
- It is stated by the senators that there is a need for around federal investment $1.5 trillion to establish this new fund.
- To start the new fund, the Treasury will start covering Social Security benefits, with the fund paying back the Treasury and supplementing payroll taxes in the future.
- The senators noted that many nations use a similar strategy to fund their retirement programs and pointed towards the National Railroad Investment Trust as a successful example of a similar investment strategy.
Criticism and Concerns
Some experts, such as Gopi Shah Goda, who is a director of the Retirement Security Projects at the Brookings Institution, have raised concerns that the proposal is unable to address the underlying structural imbalances in the social security programs and also includes potential risk.
Devin Carroll of Carroll Advisory Group states that he agrees with the potential for higher returns through investing new funds in equities, but he also highlights the increased that it involved. There are several question raised about this plan that how government might become involved in private markets.
Advantages Highlighted by Kaine and Cassidy
- The senators emphasize that this plan would ensure that consistent offering of social security benefits for future generations.
- They also claim that their plan helps in reducing the long-term indebtedness of the United States up to 20 percent.
- Kaine and Cassidy also noted that their proposal was associated with the different investment strategies employed by most state and private retirement programs in other countries.
Addressing the Windfall Elimination Provision and Government Pension Offset
- In addition to their proposal of investment fund, the Kaine-Cassidy also addresses the elimination of Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
- These two policies had decreased the social security benefits of the recipients who also received pensions from other government employment not covered by Social Security. It mainly affects police officers, teachers, firefighters, and city workers for a long time.
- However, after the elimination of GPO and WEP, the retirees affected by this were paid a one-time retroactive payment at the start of 2025.
- This shift primarily benefits seniors whose hundreds of dollars had been lost when their spousal benefits were offset by their benefits under earlier rules.
- Cassidy also announced recently that, as a retroactive payment, Louisiana has received over $566 million due to the abolition of GPO and WEP, the Social Security Fairness Act, which demonstrates a commitment to address these issues, according to the US senator Bill Cassidy.
Broader Context of Social Security Reform
- The debate surrounding Social Security solvency includes various proposals beyond the additional investment plan of the Kaine-Cassidy plan.
- The potential solution includes raising in Full Retirement Age in which the retirement age is set to be 65 by the Social Security Act.
- New Tax Deductions for Seniors, which are aimed at the overall income of retirees, are to release their tax burden with modest retirement incomes.
- Social Security COLA Changes for 2025, in which nearly 72.5 million Americans will receive benefits based on their earnings. As announced by the SSA, there will be a 2.5% increase in Social Security benefits in 2025.
- Overpayment Recovery Policy Changes announced by the SSA include a revision limiting the recovery rate to 50% for most Social Security benefits. This change offers some relief to some beneficiaries but affects others who are fully dependent on the social security benefits for even a single dollar
- Another approach includes a social security increased Payroll Tax cap that limits the amount of income subject to social security taxes.
- Those recipients who do not use online platforms and are still applying for their retirement benefits through phone or in person may now be required to verify their identity in person. This will create difficulties for them because the SSA payment to be made electronically.
