Key House GOPer Introduces Bill With Major Cuts To Social Security

Charles Dharapak

A key House Republican on the issue of Social Security introduced a bill Thursday that would impose major cuts to the program. The bill, the Social Security Reform Act of 2016, was introduced by Rep. Sam Johnson (R-TX), the chair of the House Ways and Means subcommittee on Social Security.

It would, among other things, gradually raise the retirement age from 67 to 69 on Americans 49 or younger at the present. It would change the formula that determines the size of a retiree's initial payments. And it would switch the program to a less generous formula for raising payments according to cost of living increases.

Big picture, the most concerning element for many experts is that its approach to make the program more solvent rest entirely on cuts, and does not raise revenues for the Social Security Trust Fund, as some bipartisan proposals have. Across the political spectrum, solutions for long term solvency range from cuts-only approaches like Johnson's bill to plans that achieve 75-year solvency by raising the current income cap on social security taxes.

"Ultimately, we are going to need something that's a little more balanced between benefits saving and revenue changes in order to get a proposal that could pass Congress and get approved by the president," said Shai Akabas, director fiscal policy at the Bipartisan Policy Center.

The cuts in the bill lean more heavily on high income-earners, but most workers would see cuts — some of them drastic — if Johnson's bill became law.

The initial cuts come in the form of the two-year retirement age increase, which according to Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities, amounts to a seven percent cut each year.

The changes to the formula to determine the initial benefit — known as the Primary Insurance Amount (PIA) — are more complicated and involve multiple moving parts. In general though, they negatively impact higher earners the most.

"The change in the formula, it's structured so that it produces the largest decreases on benefits for the people with the highest pre-retirement earnings," Van de Water said.

Almost all beneficiaries, however, would see reductions as time went on when compared to current law, due to the legislation's use of a less generous inflation metric.

"That's another cut in benefits, and one that grows the longer the person is on the benefit rolls," Van de Water said.

Some low wage earners — particularly those who have participated in the workforce the longest — are shielded from these cuts due to an increase minimum benefit the legislation includes that acts as a floor for those at the bottom of the scale.

A letter from the Social Security Administration's Chief Actuary gives a more concrete picture of what the legislation would like if implemented. On the low end of the scale, for retirees who have been in the workforce the longest, a 65-year-old who made an average of $12,280 (according to an established formula called AIME) after being in the workforce for 30 years would see his benefits increase by 9 percent when he retired in 2030, as compared to the current law. A 65-year-old retiree at the earning level who was only in the workforce for 20 years would see 19 percent decrease, however, in 2030. That cut would be 32 percent, if the 65-year-old was retiring in 2050.

Up the earning scale, the reductions continue. A 65-year-old middle-income earner, someone who earned an average of $49,121 after 44 years in the workforce, would see a reduction in her benefits of 11 percent when she retired in 2030, compared to the current law. The amount of reduction would increase the longer she stayed on the rolls: when she was 75 years old, for instance, the reduction would be 14 percent compared to current law, and 16 percent when she was 85 years old.

And the cuts get more severe the later a middle-income earner is retiring. If a 65-year-old at that earning level retired in 2050, her benefits would be 17 percent less than current law. By the time that retiree was 75 years old, they would be 19 percent less, and when she was 85, 22 percent less.

A 65-year-old at the top of the scale, a $118,500 average earner, would see his benefits cut by 25 percent when he retired in 2030, compared to the current law, and that reduction would grow to 55 percent compared to current law by the time the retiree was 85 years old. Likewise, those cuts get larger the longer the law is in place. The 65 year-old at the top of scale who retires in 2050 will see a 43 percent cut in his benefits, compared to current law, that will grow to a 74 percent reduction by the time he is 85.

Additionally the Johnson's bill makes some notable cuts to spousal benefits, while introducing some means-testing provisions.

The Republican proposal comes as GOP lawmakers are in the midst of figuring out a plan to implement an Obamacare repeal, which, according to health policy experts stands to kick millions of their insurance. Hints that Republicans may consider Medicare privatization were met with a swift rebuke by Democrats, who vowed to go to war over the program. Many pointed out that President-elect Donald Trump campaigned on protecting social safety net programs.

Likewise, Democrats were quick to condemn the GOP Social Security overhaul proposal. Even before most news outlets had picked up on the legislation, House Minority Leader Nancy Pelosi (D-CA) put out a statement slamming Johnson's bill.

“Slashing Social Security and ending Medicare are absolutely not what the American people voted for in November," Pelosi said. "Democrats will not stand by while Republicans dismantle the promise of a healthy and dignified retirement for working people in America.”

ABOUT THE AUTHOR

Tierney Sneed is a reporter for Talking Points Memo. She previously worked for U.S. News and World Report. She grew up in Florida and attended Georgetown University.
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