It’s no question Congressman John Larson’s (D-CT) Social Security 2100 Act is the most promising piece of Social Security reform legislation we’ve seen in a very long time. Introduced in January with 201 original cosponsors, this is the first direct reform bill that has a good chance of serious examination and progression in many years.
The 2100 Act is certainly ambitious. In a sweeping package of policy updates and changes, it aims to provide benefit increases, stronger COLAs, cut taxes on beneficiaries, and perhaps most importantly, adjust Social Security’s funding such that we can provide for expanded benefits and increase the program’s long-term solvency.
The strategies outlined in the package are proven winners with the American public, but as the legislation gains traction, fiscal policy and retirement experts question whether or not it’s the right thing to do for our country.
Specifically, they’re laying heavy criticism at the feet of a payroll tax increase the bill includes to bring much-needed income into the Trust Fund.
In order to allow for broad benefit increases to all beneficiaries–especially low-income beneficiaries—the 2100 Act proposes gradually increasing our Social Security payroll tax rate by 0.1% each year until 2043. The goal is to slowly raise our current tax rate from 12.4% to 14.8%.
The Social Security payroll tax is equally shouldered by workers and their employers, both paying 6.2%. Under the 2100 Act, workers would eventually pay 7.4% in Social Security taxes.
While most agree current benefits are woefully inadequate and some kind of revenue boost is needed in order to bring them to rights, critics of the 2100 Act disagree a payroll tax hike of this nature is the way to do it.
According to a recent article at MarketWatch, Congressmen and financial experts alike are claiming this 7.4% is simply too much for young workers to bear, citing enormous student debt and high rent costs. They say “confiscating” more of Millennials’ incomes will add to an already massive savings crisis.
In many ways, there’s something to that belief.
Researchers at the Federal Reserve studying the consumption patterns of some of our youngest workers confirmed that despite cultural narratives about wildly different spending habits and tastes, Millennials spend in the same ways as previous generations—they just do less of it.
That’s because the larger economic environment has made money much tighter for this generation than others. Young workers today earn lower incomes, have less wealth, and fewer assets in general. Millennials just can’t afford to spend as much as they might like.
But is this as critical a problem as the critics say?
The 2100 Act proposes a payroll tax increase over the span of over 20 years. Once fully implemented, someone making $50,000 could expect to pay an additional $600 in Social Security taxes. Phased in over time, this could be very manageable.
In return, Millennial workers could be assured that they’d also one day receive expanded, adequate Social Security benefits. Social Security is vital to young workers with the absence of pensions.
Maybe the most important thing to note is the overwhelming support most Millennials feel when asked about Social Security. Three-quarters of young workers say they are absolutely willing to pay more in Social Security taxes if it means current and future beneficiaries have a secure Trust Fund.
Given young workers’ unique financial challenges, it’s certainly worth taking a closer look at how the 2100 Act proposes to increase funding and sustain Social Security’s solvency. There are a variety of ways to bring more money into the Trust Fund, and looking at policy packages from every angle is necessary to achieve a solution that works for everyone.
But this simple criticism shouldn’t end the conversation about this legislation—or any future Social Security reform legislation. Times are tough for young people, but they support fixing Social Security as much as any current beneficiary. One day, they’ll depend on it, too.
Let’s not let Millennials be the reason we stop seriously talking about fixing Social Security’s insolvency.