Rep. Tom Reed (R-N.Y.) brought the national conversation about Social Security reform to Ithaca on Tuesday with a town hall at the Tompkins County Public Library.
Most of Reed’s town hall Tuesday focused on Social Security, at times pivoting to immigration and Medicare as they relate to the program. However, the event mostly addressed policy issues of solvency — the ability for Social Security to pay out benefits — which is a looming threat over Washington with the Social Security Board of Trustees estimating it won’t be able to pay retirees after 2037 unless Congress acts.
“One of the things that I am committed to is reforming Social Security, to save Social Security for future generations,” Reed told the roughly 50 people gathered Tuesday.
Social Security is a separate set of funds that don’t go through the yearly allocations process like the budgets of federal departments like the Department of Defense or Food and Drug Administration. Instead, Social Security is housed within two trust funds. Money flows into the fund via payroll taxes, different from income taxes, and is disbursed to retirees as soon as they turn 62 years old. This all happens according to formulas established by Congress with the idea that today’s workforce will fund today’s retirees.
But as the baby boomers age and move out of the workforce, there is a surge of retirees overwhelming the trust funds to the point where today’s workers can’t keep up without significant changes to increase revenue from payroll taxes or slash benefits.
Reed entertained several solutions at the Ithaca town hall to change the formulas and keep the funds solvent like removing or increasing the cap on taxable income and increasing the threshold for tax-exempt benefits, but he defended a staunchly Republican position to neither decrease benefits nor increase taxes going to support the program.
“The difference, however, with the majority is we can secure these benefits without tax increases,” Reed said at his first subcommittee hearing as ranking member in March. “Our principles in this mission are simple, long-term economic growth by encouraging work, not penalizing it; equal treatment for public servants; acting now to defend those future generations’ benefits; and protecting the most vulnerable people through focus reforms.”
Reed reiterated his position at a full committee hearing in late July over Social Security subcommittee chairman Rep. John Larson’s (D-Conn.) Social Security 2100 plan, the most prominent Democratic proposal currently in the hopper to fix the program.
The most ambitious proposal in Larson’s bill would eliminate the cap on income that can be taxed for contributions to Social Security. Currently, wage earners have to pay payroll taxes toward Social Security on the first $132,900. By removing the cap, high-income earners — Larson estimates only the top 0.4% of earners — would then have to pay more into Social Security.
“That $130,000 cap that is set there,” Reed said of the existing cap on taxable income at the town hall. “We would have to adjust that and potentially get new revenue coming in so you’re going to tax a tremendous amount of new people who are otherwise not subject to the tax.”
Reed didn’t outright oppose adjusting the cap, acknowledging that changes to the revenue or taxing side of Social Security will likely have to be addressed to avoid more “draconian” measures nearer to 2035. But Reed was clear in his opposition to another one of Larson’s proposals which would increase the base rate of the payroll tax from 6.2% to 7.4% of income brought into effect over a period of 23 years.
“I’m open to potentially lowering the rate, especially on lower-income folks and where do we set that threshold,” Reed said.
Larson pitches the increased taxes as the equivalent of only an additional 50 cents each week, or the cost of a cup of Starbucks coffee each month. Reed and Republicans have disputed that comparison, claiming it will have a much more regressive and potent impact on taxpayers.
At a hearing for the bill in July, Reed brandished a comically oversized coffee cup to poke fun of Larson’s analogy.
“As we see it on the Republican side, this is a large tax increase,” Reed said. “This is the ‘more’ sized cup of coffee that we got to fight in regards to the tax increases we’re looking at for this payroll tax.”
Reed opted for a normal size coffee cup during Tuesday’s town hall.
There are other policy solutions left out of Larson’s bill that lawmakers could still employ in a Social Security fix. Lawmakers could employ what’s called “progressive indexing” to decrease the amount of benefits that higher and middle-income earners receive. They could adjust the yearly cost of living adjustment which some experts claim overestimates inflation. Former House Speaker Paul Ryan once suggested allowing beneficiaries to withdraw from paying Social Security entirely at age 55 leading to a privatization of the program.
Other factors of the U.S. fiscal and economic landscape may also have ripple effects on Social Security. As workers’ wages increase, so do their contributions to Social Security. Reed says wages are “without a doubt” increasing, but growth has been modest, just keeping up with inflation.
Another factor at play is the size of the U.S. workforce, which is projected to decline as birth rates fall. One possible way to supplement this is through immigration.
“When I look at Social Security, immigration reform is a critical piece to get to the revenue piece. If you think about it, you could have hundreds of thousands of immigrants coming in and paying on their salary into the Social Security fund. That’s a whole bunch of new revenue that you essentially put in the pie,” Reed said, though he told attendees Tuesday that he was less than optimistic about any sweeping immigration reform measures making it to the White House.
Larson’s Social Security 2100 plan is scheduled to come before a committee markup sometime in the fall, a critical step toward reaching a vote on the House floor. However, that is an optimistic outlook on its own, let alone suggesting it make it through the Senate and be signed by President Trump this year.