A bipartisan group led by Sens. Angus King, I-Maine, and Bill Cassidy, R-La. is considering gradually raising the retirement age to about 70 as part of their legislation to overhaul Social Security, Semafor has learned from two people briefed on their efforts.
Other options on the table include changing the existing formula that calculates monthly benefits from one based on a worker’s average earnings over 35 years to a different formula that’s based instead on the number of years spent working and paying into Social Security.
The plan also includes a proposed sovereign wealth fund (as previously reported by Semafor) that could be seeded with $1.5 trillion or more in borrowed money to jumpstart stock investments, the people said. If it fails to generate an 8% return, both the maximum taxable income and the payroll tax rate would be increased to ensure Social Security stays on track to be solvent another 75 years.
“This is an example of two leaders trying to find a solution to a clear and foreseeable danger,” Cassidy and King spokespeople told Semafor in a statement. “Although the final framework is still taking shape, there are no cuts for Americans currently receiving Social Security benefits in our plan. Indeed, many will receive additional benefits.”
In a brief interview Monday evening on Capitol Hill, Cassidy said he’d been meeting with stakeholders for the past two years on the proposal, but that its details were still in flux. “You could really take a fund and, with certain assumptions, take all your revenue from there,” he told Semafor.
Sen. Mike Rounds, R-S.D., a member of the group, previously said that raising the payroll tax cap was under discussion. Only the first $160,000 of employees’ earnings are currently subject to payroll taxes, which help fund Social Security. If Congress fails to step in, retirement benefits will be cut roughly 20% for seniors starting in 2032, per the Congressional Budget Office.
Raising the retirement age is probably a non-starter with Congressional Democrats. The White House has made defending Medicare and Social Security benefits a major theme ahead of the 2024 election and seem unlikely to go along with any proposal that complicates their message.
“The president has not endorsed a specific proposal but has made clear that he opposes Social Security benefit cuts,” a White House official told Semafor. “He does welcome proposals from members of Congress on how to extend Social Security’s solvency without cutting benefits or increasing taxes on anyone making less than $400,000.”
On the left, Sen. Bernie Sanders, I-Vt., recently rolled out a bill that would apply the payroll tax to higher salaries, including wealthier Americans’ investment income, in order to fund a major expansion of benefits.
The concept of automatic tax hikes to cover losses or slower-than-expected growth in the sovereign wealth fund could run into issues with members of both parties as well.
“If you increase the rate, that is a regressive tax,” Laura Haltzel, a retirement security expert at the Century Foundation, told Semafor. “It’s going to hit your lowest earners for every dollar that they earn more than your billionaire.”
Raising the cap on payroll taxes to cover top earners also is likely to be a tough sell on the right, which has resisted tax hikes for decades.
There are other political landmines too: Switching the benefit formula to another system based on years worked could penalize people who are out of the workforce due to caregiving responsibilities or health problems, two of the biggest issues exacerbating the current labor shortage.
“It rewards people with more years of work and penalizes people with fewer years of work,” Kathleen Romig, a Social Security expert at the left-leaning Center for Budget and Policy Priorities, told Semafor. While some would benefit from the change, Romig said, “on net, it’s definitely a cut.”
Room for Disagreement
The Washington Post’s editorial board thinks the time is right for the bipartisan group’s work, and has commended them for being willing to “take political risks” that other leaders are avoiding. “The potential trade-offs aren’t painless, but some mix of benefit reductions and tax increases is necessary,” the board wrote earlier this month.
- Expect Social Security to come up plenty in the 2024 presidential race, where both President Biden and former President Donald Trump have signaled they plan to attack their rivals for pursuing benefit cuts in the past. One candidate ready to take them on: former Vice President Mike Pence, who has suggested privatizing Social Security.