Two Senators have a new plan to save Social Security before it goes insolvent and benefits will need to be cut.
In an op-ed in the Washington Post, Senators Bill Cassidy (R-LA) and Tim Kaine (D-VA) proposed the creation of a new investment fund that will be used to fund Social Security benefits in the future. The payroll taxes currently used to fund the program cannot keep up with benefits paid out and the senators note that if nothing is done, the Social Security Trust Fund is projected to become insolvent by the year 2033.
“That’s why we’re working on a bipartisan proposal for a new investment fund that would infuse much-needed money into Social Security, while ensuring no one on Social Security or nearing retirement sees any change to the benefits whatsoever,” wrote Senators Cassidy and Kaine. “We propose creating an additional investment fund — in parallel to the trust fund, not replacing it — that would be invested in stocks, bonds and other investments that generate a higher rate of return, helping keep the program from running dry.”
According to the proposal, the federal government would need to make an upfront investment of $1.5 trillion to start the fund, and will give it 75 years to grow. In the meantime, the U.S. Treasury Department would provide Social Security benefits. When the 75 years are up, the fund would pay back the Treasury and supplement payroll taxes to fill the future gap.
The senators say they’re putting together a coalition and soliciting feedback from a wide range of experts.
“I think that if I had to summarize feedback, it would be this can be a really important part of our solution,” said Senator Kaine to The Hill. “It probably is not the entire solution, which we know.”
Economists and Analysts Have Concerns
The plan received a largely tepid reaction from economists and policy analysts who have long studied the issues with Social Security.
“Unfortunately, their proposal does not improve the program’s finances because it avoids imposing the tax increases or benefit reductions that are necessary to keep it solvent,” said Sita Nataraj Slavov, a nonresident senior fellow at the American Enterprise Institute who focuses on public finance and the economics of aging.
“Borrowing funds in the way the proposal suggests would likely raise interest rates and slow growth, and avoids the difficult but important work of modernizing the program so that it continues to provide important protection to seniors in a sustainable manner,” said Gopi Shah Goda, the director of the retirement security project at Brookings.