The document discusses options for reforming social security revenues presented by groups like the AARP and Congressional Budget Office. It outlines 9 options from the CBO for changing the payroll tax rate and maximum taxable earnings to improve social security's finances. These include gradually increasing the payroll tax rate by 1-3 percentage points, eliminating or raising the taxable earnings maximum, and taxing some or all earnings above the maximum but without increasing benefits. The document analyzes how each option would impact social security revenues, long-term financing, and the trust funds exhaustion date. It notes the challenge of implementing changes due to many competing ideas and lack of political compromise.

1. For this project, I made the PowerPoint presentation. I made a schedule for our group for submitting information and slides. We mostly communicated through email and had a meeting to allocate jobs within the group. My focus was the option of changing the payroll tax for revenues for the program. I had no prior knowledge of the issue of social security before taking this class so this project was definitely an eye-opener. I feel that I have learned more than most people may age and I’ve also learned the importance of social security and it’s affect on me as a working person. <br />The social security policy stream contains complicated options and factors to ponder which are highlighted in our presentation. My contribution to the group was the PowerPoint presentation. I created a schedule for the group of when I wanted their slides. We communicated through email and had a meeting to allocate duties. The group focused on different options and alternatives that are present within the policy stream. We assigned different options to everyone in the group. I tackled the revenue theme. I explored the possible options that are floating around in the policy stream regarding the adjustment of the payroll tax. <br />The basic problem with social security is that resources are depleting because of the baby boomers receiving benefits that results in a lower ratio between the retired group and current workers, the declined birth rate (compared to that of the baby boomers), and an increase in life expectancy. Funding for social security is a major problem that has not been resolved. The government’s use of the surplus funds in the Social Security Trust Fund is also a reason for the decline in funds. The money borrowed from the trust fund goes towards the national debt. The Trust Fund consists of savings of worker contributions and associated interest, to be used towards future payments. These funds are held in the US Treasury bonds and US securities backed by the credit of the government. By 2015, the government is expected to have borrowed nearly $3.25 trillion from the Social Security Trust Fund. Currently, Social Security is mainly funded by the payroll tax. Employees pay 4.2% towards social security on earnings up to $106,800; employers pay 6.2% on earnings up to $106,800. According to a CBO study, there are roughly 2.94 workers per beneficiary. More than 150 million people help fund this program and about 50 million receive the benefits. <br />The social security policy stream contains many possible options for changing the program such as adjusting the payroll tax, benefits, retirement age, and the cost of living adjustment (COLA). When dealing with adjusting revenue to find the program, the payroll tax is the first option that comes to mind. Something to keep in mind when adjusting the payroll tax is the start dates for implanting the increase in tax. The Congressional Budget Office gives a few examples. “… CBO estimated the effect of boosting the payroll tax rate by 2.0 percentage points gradually over two decades but starting in 2022 instead. If the increase started in 2012, the Social Security trust funds would be not exhausted until 2083. However, if the onset of payroll tax increases were delayed by 10 years, until 2022, the result would be quite different: The Social Security trust funds would be exhausted by 2056.” Therefore, if policymakers were to postpone implementation it would have a very different outcome. If the policymakers wanted to achieve a 75- year actuarial balance, the increase in the tax rate would need to be larder. The tax rate would need to increase by 2.6 percentage points than 2.0 percentage points. Timing is very important in deciding when to implement change within the payroll tax due turbulent nature of the social security program. <br />Increasing the payroll tax affects everybody but it could have a greater effect on some more than others depending on how high or low a person’s earnings are or on members of other specific populations. Age is also a factor to consider because there could be greater effects on people born earlier or later. Any change in revenues for the program correlates to the change in the benefits. Changing the maximum amount of earnings subject to payroll taxes would affect the benefits because the amount of earnings included in the AIME would change. Imposing taxes on earnings above the current taxable maximum would also affect benefits, but an additional tax could be applied solely to raise revenue without affecting benefits. This type of policy could potentially extend the existing tax rate of all earnings or it could apply a different rate above the taxable maximum with no effects on benefits.<br />Groups such as American Association of Retired Persons (AARP) and the Congressional Budget Office (CBO) have provided the public with published studies and many possible social security options. Each option assumes that scheduled benefits are paid and consistent with the program’s finance system. AARP has some options for raising revenues. Their first option is to raise the cap to 90% of taxable earnings. This option would create a 39% reduction in shortfall. It would be a gradually phased and would affect only 6% of taxpayers or top 15% of income. The only downfall to this option is that taxes are increased. Another options would be to raise taxes on benefits that would lead to a 10% reduction in shortfall. This option would lead to a reduction in benefits for high wage earners. Other alternatives that the AARP study provides are: preserving tax on estates over $3.5 million, extending coverage to newly hired state and local government employees, and investing 15% of the trust funds in stick and bond index funds. <br />The CBO studies offer more than 30 different options for change in social security. The office provides 9 different options that would change the taxation of earnings. This presentation will only report from actual changes within the payroll taxes and taxable maximums. Option 1: Increase the Payroll Tax Rate by 1 Percentage Point in 2012. This option would raise payroll tax for employees and employers by 0.5 percentage points each. This would increase social security revenues by 0.4 percentage points by 2040. It would also improve the 75-year actuarial rate and extend the trust fund exhaustion rate to 2056. Option 2: Increase the Payroll Tax Rate by 2 Percentage Points over 20 years. This option would raise the combined payroll tax gradually by 0.1 percentage point every year from 2012 to 2031. By the end of this period the tax rate would be 14.4 percent. This option would improve the 75-year actuarial balance by 0.6 percentage points and extend trust funds to 2083. Option 3: Increase the Payroll Tax Rate by 3 Percentage Points over 60 years. This option would increase gradually 0.5 percentage points every year from 2012 to 2071. By the end of the term the rate would be 15.4 percent. This option is similar to Option 2; however, the tax rate would be higher and implemented more gradually. Option 4: Eliminate the Taxable Maximum. The Social Security revenue would increase by 0.9 percentage points in 2040 and improve the 75-year actuarial balance by 0.6 percentage points that would extend the exhaustion date of the trust fund to 2083. This option would affect the higher earning payers. The increase would be 12%, 15%, and 18% depending on when the person was born. Option 5: Raise the Taxable Maximum to Cover 90 Percent of Earnings. This option would raise the taxable maximum to $156,000 so that in 2012, 90% of earnings would be taxable. Ultimately, this alternative would increase revenue by 0.4 percentage points by 2040. It would also improve the 75-year actuarial balance and extend the trust fund exhaustion date to 2050. Option 6: Tax Covered Earnings Above the Taxable Maximum; Do not increase benefits. This option would use the same tax method as option 4 but the taxable maximum would have no effect on scheduled benefits. This option would increase revenue by 0.9 percentage points in 2040 and improve the 75-year actuarial balance by 0.9 percentage points. It would also extend the exhaustion rate of the funds for more than 75 years. Like option 4, this would affect taxes paid by higher earners. Option 7: Tax Covered Earnings Up to $250,000; Do not increase benefits. Under this option, all covered earnings between the taxable maximum and $250,000 would be taxed at 12.4 percent. This option is similar to option 6 except the increase in the payroll tax would be smaller. Total revenue would increase by 0.5 percentage points in 2040 and also improve the 75-year actuarial balance by 0.5 percentage points of. It would also extend the trust fund by 38 years. This option affects higher earners. Option 8: Tax All Earnings Above the Taxable Maximum at 4%; do not increase benefits. This option would start in 2012 and all covered earnings above the taxable maximum would be taxed at 4%. Revenue would increase by 0.3 percentage points in 2040 and improve the 75-year actuarial balance by 0.3 percentage points. It would ultimately extend the exhaustion rate by 12 years. Option 9: Tax All Earnings above $250,000 at 4 Percent; Do Not Increase Benefits. This option would implement a 4% tax on high earners but the tax would only apply to covered earnings above $250,000. This option would only apply to about 1% of the people with earnings in 2012. Reviews would rise by 0.1 percentage point in 2040, improve the 75-year actuarial balance by 0.1 percentage point, and extend the trust fund exhaustion rate to 2043. The higher payroll taxes would result in higher payable benefits in 2039 and beyond. Furthermore, the CBO study presents so many options that are surveyed in this presentation. <br />From examining all the different options presented by various groups, the social security policy stream proves to be overfilling. This goes to show that there are so many options out there for implementing changes in the social security system. It just takes making a policy decision to start these changes. The problem (like in most politics) is many groups have so many ideas and are not willing to compromise. This delay makes it difficult for any type of change especially in the a program like social security because it is so contingent on timing and factors such as age. <br />