The Social Security reform debate is important to employers and particularly to human resources managers. Without Social Security, many employees could not afford retirement, and many others would be under pressure to help support parents, other older relatives, disabled family members, and children who have lost a parent. Without Social Security, some of these employees would be distracted and under stress, and less able to do their jobs. The impact of Social Security on business is “two-sided” – on the one hand, Social Security costs corporations money, but on the hand, it is very important to many employees and their families.
Social Security reform is once again on the national agenda. The results of a new study from the National Academy of Social Insurance, Strengthening Social Security: What Do Americans Want?, indicate that Americans prefer raising payroll taxes and increasing benefits to reducing benefits. This position represents a sharp contrast from many lawmakers who want to cut benefits by using a “chained” Consumer Price Index to determine Social Security’s cost-of-living adjustment (COLA).
The survey found that fully 74% of Republicans and 88% of Democrats agree that “it is critical to preserve Social Security, even if it means increasing Social Security taxes paid by working Americans.”
The survey used a new approach to measure public opinion regarding Social Security to help define a preferred package of changes, much as lawmakers might do. The study results show that the most favored package of changes — preferred to the status quo by 7 out of 10 participants across generations and income levels — would:
- Gradually, over 10 years, eliminate the cap on earnings taxed for Social Security. This would mean that the 5% of workers who earn more than the cap would pay into Social Security all year, as other workers do.
- Gradually, over 20 years, raise the Social Security tax that workers and employers each pay from 6.2% of earnings to 7.2%. The increase would be so gradual that someone earning $50,000 a year would pay about 50 cents a week more each year, with the employer’s share increasing by the same amount.
- Increase the COLA to more accurately reflect the inflation actually experienced by seniors, who typically pay more out-of-pocket for medical care than other Americans.
- Raise Social Security’s minimum benefit so that a worker who pays into Social Security for 30 years can retire at 62 or later with benefits above the federal poverty line ($10,788 in 2011). Currently, lifetime low-wage workers are at risk of falling into poverty in their old age, even after paying Social Security taxes throughout their working lives.
Social Security currently faces a projected long-term funding shortfall, and in the absence of action by Congress, the program would be able to pay only about 75% of scheduled benefits after 2033. The above package of four changes would turn the projected financing gap into a small surplus, providing a margin of safety. Many Americans are not aware of the situation in 2033, and some think it is much worse. Many do not realize the types of steps that would keep the system operating on a sound basis.
The study strongly suggests that it would be logical to reframe the Social Security debate and to consider a wider range of options – not just cutting benefits. Many employees are not knowledgeable about the Social Security system. Employers must decide if they wish to educate employees about some of the issues, as well have them participate directly in the Social Security debate. Considering how important Social Security is to employees, any education would be helpful.
For information on the operation of Social Security, including a short and very informative video, consult the National Academy of Social Insurance website.
* Note: Anna Rappaport is a member of the National Academy of Social Insurance