With Social Security currently sitting less than 7 years from insolvency, the Committee for a Responsible Federal Budget is calling for legislation to limit the highest payouts to wealthy beneficiaries to help extend the program’s solvency.
The Trust Fund Solutions Initiative whitepaper from CRFB outlines the Six Figure Limit (SFL) proposal, which would set a $100,000 cap on the total benefit a couple retiring at the Normal Retirement Age (NRA) can receive starting this year. The SFL would be adjusted based on marital status and claiming age, with a $50,000 limit for a single retiree. A couple in which both spouses began collecting benefits at age 70 would face a $124,000 limit, reflecting the 24% delayed retirement credit. A couple with both spouses collecting at age 62 would face a $70,000 limit, reflecting the 30% early retirement actuarial reduction. Different claiming ages would result in a blended limit.
The nonpartisan, non-profit organization committed to educating the public on issues with significant fiscal policy impact notes that if Social Security becomes insolvent, the law calls for what would by current projections amount to a 24% across-the-board benefit cut. “Yet despite facing large deficits, Social Security now pays the wealthiest couples roughly $100,000 in annual benefits,” the paper says. “Although only a tiny fraction of couples will enjoy such generous benefits in the near term, six-figure benefits will become increasingly common over time.”
CRFB says instituting the SFL would “meaningfully slow the growth in Social Security’s burgeoning generosity at the top, limiting benefits from growing too far past what is necessary to provide for ‘a measure of protection’ in old age,” as the program was originally intended to do.
Given the Social Security program’s large structural funding gap, CRFB argues it is questionable whether the program should be distributing $100,000 a year to some of the wealthiest people in the world. “As an income support program, there is a good case that Social Security should provide a base of retirement income, not a windfall.”
In combination with other reforms, CRFB says the Six Figure Limit would help “restore Social Security solvency in a targeted, timely, progressive, and pro-growth way.”
Jason DeBacker of the Open Research Group modeled three options to index the Six Figure Limit over time. Based on this analysis, the Six Figure Limit would:
• Close one-fifth of Social Security’s solvency gap and three-fifths of the 75th year deficit with a Six Figure Limit indexed to inflation.
• Eliminate between one-quarter and one-half of the solvency gap and one-quarter to three-fifths of the 75th year shortfall if the SFL were temporarily fixed in nominal terms and then indexed to average wages.
• Save $100 billion to $190 billion over a decade under these options.
• Increase progressivity, with 60% to 90% of the savings coming from the top fifth of retirees in 2060, including 40% to 60% from the top tenth.
• Boost payable benefits for the bottom 70% to 80% of beneficiaries, with benefit increases of 4% to 25% for the bottom quarter of beneficiaries in 2060.
• Boost economic growth by encouraging personal savings and reducing deficits while having limited impact on work incentives.
Check out the SFL white paper here.
TSCL not a fan of plan
In its most recent 2027 Social Security COLA forecast issued last Friday, The Senior Citizens League says seniors are likely to resist the CRFB proposal to cap payments to beneficiaries.
“This effectively amounts to a benefits cut for some Americans, and TSCL’s research finds that 95% of seniors oppose benefits cuts for current retirees, while 66% oppose cuts for future retirees,” the senior advocate organization said Friday.
TSCL argues that $100,000 doesn’t go as far as it used to, and takes issue with the SFL plan does not guarantee that the cap would increase over time as the economy grows, or might freeze the cap for up to 30 years before allowing it to grow.
Instead of limiting the cap on benefits, TSCL research says most seniors would rather have the government eliminate the cap on Social Security contributions. Americans currently do not pay taxes into Social Security on income above $184,500. About 77% of seniors support eliminating the limit, with majorities among both Democrats, Republicans, and Independents alike. According to the Social Security Administration’s Office of the Chief Actuary, this would extend Social Security’s insolvency through at least 2090 without any benefit cuts. That’s even longer than what the Six Figure Limit proposal would accomplish.
“Rather than taking away benefits from people who have paid into the system their entire working lives, we should focus on strengthening America’s pension system,” said TSCL Executive Director Shannon Benton. “Seniors tell us over and over that their benefits don’t go as far as they used to, and many younger people worry if the program will have atrophied to a shadow of its former self by the time they reach retirement age, even as taxes on their wages cover today’s benefits.”
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