One reason lawmakers are hesitant to fix Social Security: the Millennials
Critics of increasing revenue by taxation say young workers can’t afford it, while others say they can’t afford not to pay more for Social Security expansion the Social Security 2100 Act is one proposal to expand the social insurance program, so that it doesn’t reach insolvency in 15 years.
Lawmakers are proposing ways to extend and expand Social Security, which is facing insolvency in the next 15 years. If nothing is done, the trust funds that fuel the program will run out of reserves by 2034, and future retirees will get 79 cents on the dollar of what they’re owed in benefits.
One such proposal is the Social Security 2100 Act, introduced by Representative John Larson (D-Conn.), the chairman of the House Ways and Means Subcommittee on Social Security, as well as Sen. Richard Blumenthal (D-Conn.) and Sen. Chris van Hollen (D-Maryland). The bill, if passed, would increase revenue by raising the payroll tax 0.1 percentage points every year until it reaches 14.8% in 2043 and applying the payroll tax to those who earn more than $400,000 (the limit is currently capped at $132,900).
During a Social Security subcommittee hearing this month, Democrats and Republicans, as well as members of the public, shared why such a proposal would or would not work — and why Social Security needs to be secured and expanded. Some panelists said Social Security helps retirees live with dignity on a fixed income, especially as the cost of living continues to rise, while others said one of its greatest benefits was the support it gives to those with disabilities.
Why some critics say an increased payroll tax is bad news for millennials
But some testimonies suggested Social Security couldn’t be fixed with a proposal like the 2100 Act, for the sake of millennials who are strapped for cash thanks to crippling student debt and wouldn’t be able to afford to pay the extra money in payroll taxes toward Social Security.
Mattie Duppler, a senior fellow for fiscal policy at the National Taxpayers Union, said increasing the payroll tax for millennials would deter them from saving more. “Confiscating a larger share of the burgeoning incomes of younger workers robs them of the resources to begin their own savings journey,” she said.
Younger generations, some of whom are starting businesses or who take on second jobs to make ends meet, would be burdened by paying both the employee and employer’s share of payroll taxes (employees and employers split the current 12.4% tax equally), Duppler said. And it could snowball, if employers try to make up the difference they’d pay in increased taxes by cutting salaries, which would not only hurt workers but also cause a loss of payroll, state and local income taxes, she argued.
Any why others say it’s not as big of a deal
An increased payroll tax wouldn’t burden millennials too much, at least not at first, said Richard Johnson, a senior fellow and the director of the program on retirement policy at the Urban Institute. Raising the cap wouldn’t affect many millennials, who likely aren’t making more than $132,900 at the moment, and increasing the payroll tax itself from 12.4% to 14.8% in 24 years would not be an enormous jump from what they’re currently paying, he said.
The 2.4 percentage-point increase in payroll taxes would be phased in slowly, said Kathleen Romig, senior policy analyst at the Center on Budget and Policy Priorities. Once fully implemented, an average worker making $50,000 would have an additional $600 deducted from their paychecks each year (and their employers would have the same expense, likely passed on to the employee as well). But it’s a benefit millennials and future generations will need more than the Americans before them. “They’re less likely to have a pension at work than their parents and grandparents did,” Romig said. “Social Security isn’t just for retirement, it’s also life insurance and disability insurance.”
Many millennials also support paying more to strengthen Social Security, according to a National Academy of Social Insurance report. More than three-quarters (77%) said they think it is critical to preserve Social Security benefits for future generations, even if it means increasing the taxes working Americans pay. “These are the people who are going to reach retirement when Social Security may not have the money to pay benefits, so they have a big stake in fixing Social Security,” Johnson said. If Social Security reaches insolvency in 15 years, the oldest millennials will be 55. “It’s not an abstract risk for them,” he said.