Addressing the shortfall in Social Security: Strategies for Congressional Action
Dr. Gopi Shah Goda, Director of the Retirement Security Project and a senior fellow in Economic Studies at the Brookings Institution, has proposed a balanced approach to address the financial shortfall facing the Social Security program.
Currently, only 0.5% of the money going out of the Social Security program is spent on administrative costs. The only ways to address the program's financial shortfall are to increase revenues or reduce benefits.
Dr. Goda suggests adjusting the tax rate that applies to earnings as a way to change the revenues coming into the Social Security program. Another way, according to her, is to change the taxable maximum itself by increasing the set of earnings that the tax applies to.
Increasing the retirement age or changing the growth rate of benefits are potential ways to reduce benefits. However, Dr. Goda proposes a more progressive approach by adjusting the benefit formula or changing the rate of growth in benefits differentially by income.
One such proposal is progressive price indexing, which adjusts benefits based on income such that the bottom 30% of the lifetime income distribution receives the same benefits as promised by law, while higher-income beneficiaries receive lower benefits.
Dr. Goda expresses concern about Congress borrowing extra money from general revenues to address the Social Security program's shortfall, as it would make it harder to address the financial issues of the program in the future.
The Social Security program operates like a checking account, taking in revenue from current workers and paying out benefits to current beneficiaries. The Trustees predict that starting in 2034, the program will only be able to cover 81% of promised benefits due to insufficient revenue. Overpayments in the Social Security program amount to only 3% of the shortfall.
Dr. Goda highlights that the most feasible solutions to address Social Security's financial shortfall involve a combination of approaches such as raising payroll tax rates, increasing the maximum taxable earnings cap, adjusting benefit formulas, or implementing a mix of these measures to ensure long-term solvency of the program.
The Social Security Trustees and policy researchers such as Dr. Goda recommend timely action so workers and beneficiaries can adjust to changes gradually. Addressing the shortfall requires solutions that not only close the near-term 75-year funding gap but also lead to sustainable solvency over the long term, accounting for demographic shifts like the retirement of the Baby Boomers and changing labor compensation structures.
Dr. Goda’s focus at Brookings emphasizes practical policy innovation informed by rigorous economic analysis, likely advocating a balanced approach among these options to maintain Social Security’s viability and fairness. She also discusses a proposal that considers what counts as earnings beyond wage compensation, such as non-wage benefits like health insurance, to increase the base at which the contribution rate would be applied.
- Dr. Gopi Shah Goda's balanced approach to addressing the Social Security program's financial shortfall includes reimagining the federal workforce by adjusting the tax rate applied to earnings and considering non-wage benefits as earnings to increase the base at which the contribution rate would be applied.
- The workforce reimagined proposal by Dr. Goda involves a mix of measures, such as raising payroll tax rates, increasing the maximum taxable earnings cap, and adjusting benefit formulas, to ensure long-term solvency of the Social Security program and maintain its fairness.
- The financial issues surrounding the Social Security program extend beyond administrative costs and general-news discussions to touch upon politics, business, and economics, as policy researchers like Dr. Goda advocate for timely action to address the program's projected shortfall and ensure its sustainability in the future.
