As the baby boomer generation ages and Americans continue to live longer, Social Security will become increasingly financially strained. Adopting a series of reforms could both improve the program’s solvency and more adequately support those individuals who are most in need. Two such changes, which could be part of a larger package, include adopting a new measure of inflation and updating the threshold for earnings that are taxed for Social Security.
The chained Consumer Price Index (CPI), a more accurate measure of inflation, could be used to calculate cost-of-living adjustments. This would slow the growth in benefit payments that is projected in the coming years; combined with an increase in the program’s minimum benefit and a benefit increase for older beneficiaries, this reform would both improve the solvency of the program and provide new protections for low-income and aged Americans.
Lawmakers should also consider raising the maximum level of income that is taxable for Social Security. In 2013, that taxable maximum was $113,700, meaning that the amount earned over that level was not subject to the payroll tax that finances Social Security benefits. Raising this threshold to cover 90 percent of all earned income – one of the goals of the Social Security reforms of the 1980s – would increase revenue to the program, thereby improving its solvency.
Shai Akabas is a senior policy analyst for the Bipartisan Policy Center’s Economic Policy Project. He staffed the center's Domenici-Rivlin Debt Reduction Task Force in 2010 and assisted visiting scholar Jerome Powell in his work on the federal debt ceiling in 2011.
Brian Collins is a policy analyst with BPC’s Economic Policy Project. He staffed BPC’s Healthcare Cost Containment Initiative in 2013.