The Johnson-Scott Plan for Future Funding of Social Security and Medicare—Serious Proposals or Political Rhetoric?
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Stephen R. Rolandi
October 14, 2022
Recently, U.S. Senators Rick Scott (R-Fla.) and Ron Johnson (R-Wisconsin) called to change the funding method for the Social Security and Medicare programs. Both senators advocated that these programs be funded as regular appropriations on an annual basis; Senator Scott’s plan, which is part of a larger package of legislative proposals, also calls for a quinquennial (every 5 years) review of major government programs.
Some background about Social Security is helpful here in understanding the proposal of Senators Johnson and Scott (it should be noted their plan has not yet taken the form of proposed legislation, and Senate Minority Leader Mitch McConnell has not yet expressed interest in advancing it).
This year marks the 87th anniversary of the passage of the Social Security Act of 1935, which was one of the major legislative initiatives of the New Deal Program during the administration of President Franklin D. Roosevelt. The 1935 legislation created the Social Security Program which has become a program of vast proportions and now includes: The Old Age and Survivors Insurance (OASI) Program; Social Security Disability Insurance (SSDI) Program; and the Supplemental Security Income (SSI) Program.
Currently, there are about 65 million beneficiaries in the United States representing approximately $1.1 trillion in annual expenditures. Funding for these programs is considered mandated spending under Federal law (sometimes referred to as “entitlements” or direct spending) as employees and employers pay into the program. The Federal Budget consists of discretionary spending to cover administrative costs of executive branch agencies, Congress and international operations of the Federal government; currently, these costs account for about 30 percent of the budget while the mandated portion comprises 70 percent.
Given the accelerated aging of the U.S. population and healthcare inflation, the proportion of mandated spending in the Federal budget is expected to rise to 75 percent by 2030.
The Johnson-Scott proposals have been roundly criticized as likely to result in subjecting well-established programs to partisan budget politics that are not viable.
We are currently in the “political silly season,” and candidates for elective office often make proposals designed to secure support from pivotal blocs of voters, particularly in close elections. In one sense, both Senators Johnson and Scott can not be faulted for advancing this plan, given the tightness of many U.S. Senate elections this fall and concern expressed by economists, financial analysts and non-partisan think tanks that the Social Security program will begin to incur funding deficits and meet only 77 percent of obligations by 2034; the funding in-balance has been projected to reach approximately $250-$ 300 billion annually by then.
However, their plan to change the appropriation method of Social Security and Medicare would do much more harm than good. There are a number of ways that the forecasted deficit can be closed, including but not limited to the following options:
– Lifting the payroll (taxable maximum) ceiling by which salary income is subject to the Social Security/Medicare payroll tax; it was $142,800 in 2021 and $147,000 in 2022; this would increase the revenue stream into the Social Security fund;
– Increase Social Security payroll taxes. Currently the tax rate is 6.2 percent; if it were increased to 7.6 percent, many experts believe it would go a long way to closing the forecasted deficit in 2034. According to the National Academy of Social Insurance, such a tax rate increase has over 60 percent public support;
– Raise the early retirement age from 62 to 64 which would help to reduce Social Security benefit payouts;
– Institute means-testing of Social Security benefits: This option would involve phasing out of benefits for those earning over $ 48,000 annually. Some estimate that this would eliminate about 20 percent of the estimated funding gap. By contrast, this option currently enjoys about 30 percent of public support, according to recent surveys.
– Change the cost-of-living adjustment (COLA). This would likely save funds, but negatively impact some income groups; many experts fear that poverty rates would increase;
– Reduce benefits for new retirees. This proposal, if enacted, would call for a 3 to 5 percent reduction in benefits for new retirees and close approximately 18 to 30 percent of the projected funding gap;
– Average in more working years to arrive at calculation of benefits. Currently, Social Security benefits are based on a worker’s 35 highest paid salary years; if the averaging period were increased to 38-40 years, the forecasted deficit could be reduced by 10 to 20 percent;
These are some of the many ideas that have been advanced to address the projected deficit. Changing the budget appropriation method, as suggested by Senators Scott and Johnson, would only make the funding shortfall problem even worse, and cause inequities.
In my view, the best vehicle to make this happen would be a bi-partisan commission appointed by Congress and the Executive branch (similar to what was done to reform the Social Security program in 1983 when Ronald Regan was President and Tip O’Neill was Speaker of the House of Representatives). Such a commission would then develop a package of legislative proposals. This problem can be solved with committed leadership from both sides of Pennsylvania Avenue. As with most things in life, only time will tell.
Postscript:
Persons interested in learning more about this issue can consult the websites of organizations such as The Concord Coalition (www.concordcoalition.org);
and the National Committee to Preserve Social Security and Medicare (www.ncpssm.org) as well as the American Association of Retired Persons (www.aarp.org)
Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA; President-emeritus of ASPA’s New York Metropolitan Chapter and past Senior National Council Representative. He has served on many association boards. He is a frequent guest commentator on public affairs and political issues affecting the nation and New York State. You can reach him at: [email protected] or [email protected] or 914.536.5942 or 212.237.8000.
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The Johnson-Scott Plan for Future Funding of Social Security and Medicare—Serious Proposals or Political Rhetoric?
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Stephen R. Rolandi
October 14, 2022
Recently, U.S. Senators Rick Scott (R-Fla.) and Ron Johnson (R-Wisconsin) called to change the funding method for the Social Security and Medicare programs. Both senators advocated that these programs be funded as regular appropriations on an annual basis; Senator Scott’s plan, which is part of a larger package of legislative proposals, also calls for a quinquennial (every 5 years) review of major government programs.
Some background about Social Security is helpful here in understanding the proposal of Senators Johnson and Scott (it should be noted their plan has not yet taken the form of proposed legislation, and Senate Minority Leader Mitch McConnell has not yet expressed interest in advancing it).
This year marks the 87th anniversary of the passage of the Social Security Act of 1935, which was one of the major legislative initiatives of the New Deal Program during the administration of President Franklin D. Roosevelt. The 1935 legislation created the Social Security Program which has become a program of vast proportions and now includes: The Old Age and Survivors Insurance (OASI) Program; Social Security Disability Insurance (SSDI) Program; and the Supplemental Security Income (SSI) Program.
Currently, there are about 65 million beneficiaries in the United States representing approximately $1.1 trillion in annual expenditures. Funding for these programs is considered mandated spending under Federal law (sometimes referred to as “entitlements” or direct spending) as employees and employers pay into the program. The Federal Budget consists of discretionary spending to cover administrative costs of executive branch agencies, Congress and international operations of the Federal government; currently, these costs account for about 30 percent of the budget while the mandated portion comprises 70 percent.
Given the accelerated aging of the U.S. population and healthcare inflation, the proportion of mandated spending in the Federal budget is expected to rise to 75 percent by 2030.
The Johnson-Scott proposals have been roundly criticized as likely to result in subjecting well-established programs to partisan budget politics that are not viable.
We are currently in the “political silly season,” and candidates for elective office often make proposals designed to secure support from pivotal blocs of voters, particularly in close elections. In one sense, both Senators Johnson and Scott can not be faulted for advancing this plan, given the tightness of many U.S. Senate elections this fall and concern expressed by economists, financial analysts and non-partisan think tanks that the Social Security program will begin to incur funding deficits and meet only 77 percent of obligations by 2034; the funding in-balance has been projected to reach approximately $250-$ 300 billion annually by then.
However, their plan to change the appropriation method of Social Security and Medicare would do much more harm than good. There are a number of ways that the forecasted deficit can be closed, including but not limited to the following options:
– Lifting the payroll (taxable maximum) ceiling by which salary income is subject to the Social Security/Medicare payroll tax; it was $142,800 in 2021 and $147,000 in 2022; this would increase the revenue stream into the Social Security fund;
– Increase Social Security payroll taxes. Currently the tax rate is 6.2 percent; if it were increased to 7.6 percent, many experts believe it would go a long way to closing the forecasted deficit in 2034. According to the National Academy of Social Insurance, such a tax rate increase has over 60 percent public support;
– Raise the early retirement age from 62 to 64 which would help to reduce Social Security benefit payouts;
– Institute means-testing of Social Security benefits: This option would involve phasing out of benefits for those earning over $ 48,000 annually. Some estimate that this would eliminate about 20 percent of the estimated funding gap. By contrast, this option currently enjoys about 30 percent of public support, according to recent surveys.
– Change the cost-of-living adjustment (COLA). This would likely save funds, but negatively impact some income groups; many experts fear that poverty rates would increase;
– Reduce benefits for new retirees. This proposal, if enacted, would call for a 3 to 5 percent reduction in benefits for new retirees and close approximately 18 to 30 percent of the projected funding gap;
– Average in more working years to arrive at calculation of benefits. Currently, Social Security benefits are based on a worker’s 35 highest paid salary years; if the averaging period were increased to 38-40 years, the forecasted deficit could be reduced by 10 to 20 percent;
These are some of the many ideas that have been advanced to address the projected deficit. Changing the budget appropriation method, as suggested by Senators Scott and Johnson, would only make the funding shortfall problem even worse, and cause inequities.
In my view, the best vehicle to make this happen would be a bi-partisan commission appointed by Congress and the Executive branch (similar to what was done to reform the Social Security program in 1983 when Ronald Regan was President and Tip O’Neill was Speaker of the House of Representatives). Such a commission would then develop a package of legislative proposals. This problem can be solved with committed leadership from both sides of Pennsylvania Avenue. As with most things in life, only time will tell.
Postscript:
Persons interested in learning more about this issue can consult the websites of organizations such as The Concord Coalition (www.concordcoalition.org);
and the National Committee to Preserve Social Security and Medicare (www.ncpssm.org) as well as the American Association of Retired Persons (www.aarp.org)
Author: Stephen R. Rolandi retired in 2015 after serving with the State and City of New York. He holds BA and MPA degrees from New York University, and studied law at Brooklyn Law School. He teaches public finance and management as an Adjunct Professor of Public Administration at John Jay College of Criminal Justice (CUNY) and Pace University. Professor Rolandi is a Trustee of NECoPA; President-emeritus of ASPA’s New York Metropolitan Chapter and past Senior National Council Representative. He has served on many association boards. He is a frequent guest commentator on public affairs and political issues affecting the nation and New York State. You can reach him at: [email protected] or [email protected] or 914.536.5942 or 212.237.8000.
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