Elizabeth Warren, Chuck Schumer, and Ron Wyden recently introduced a plan to increase Social Security payments by $200 per month as part of the Senate Democrats’ phase 3 plan for covid19 relief. According to the plan, the $200 increase would last until $4,000 had been paid out.
I think the plan has a major flaw. The increase is for approximately 20 months. At the end of this time, we would presumably go back to the old amount, adjusted for inflation. Twenty months is long enough for the recipients to become accustomed to living on this amount. To cut the benefits then would be cruel. Also, on the lower end of the scale, reform is needed. Many of the people on the lower end are homeless because they can’t afford housing. Most economic models show this type of increase would immediately be spent on goods and services because most of the recipients use social security as their major source of income and it’s barely adequate. Because of the immediacy of the spending, a good portion of it would be coming back as tax revenues from the providers of the goods and services. I believe this one-time increase should be permanent. This increase will provide a long-term stimulus to our economy and dampen some of the short-term fluctuations. Over 60M people depend on Social Security benefits every month. This would be a small piece of the puzzle on how to eliminate some of the income disparity in our country. More about this in other posts.
How to pay for it you might ask? Not really simple, but necessary. First, eliminate the cap on payments into Social Security. The wage cap for 2021 is $142,800. Social Security funding needs to be reformed or benefits will need to be cut in about 15 years even if benefits aren’t increased. The second source of funding would be directly from regular tax revenues. An actuarial calculation on what would be required to keep the fund solvent for 25 years would be made and an appropriate amount would be transferred from the general fund to the Social Security Trust Fund. Any large discrepancy in the first few years should be amortized over ten years. The tax reform making this possible will be the subject of another post.