With trillions of dollars in new government spending on children, families and green energy, there hasn’t been much mention of how the Build back Better account— passed by the House of Representatives on Friday — would affect older Americans. But the impact on the job market could cost Social Security recipients $750 a year in lost benefits.
The big government bill creates new entitlement programs for taxpayer-funded childcare and paid family leave, but does nothing to improve existing unfunded entitlement programs and increase their deficits.
Social Security has $19.8 trillion in unfunded liabilities — the equivalent of $154,000 for every household in America — and on track to run out of money to pay promised benefits from 2034. At that point, each Social Security recipient would be faced with about 22% of benefits.
Biden’s tax and spending legislation contains many policies that would make it harder to cope Social Security Deficits— mainly because it would increase future deficits and debt. But it also creates jobless welfare policies and adds government interventions to micromanage businesses, which could significantly reduce employment in the long run.
For example, researchers at the University of Chicago estimate that making the proposed monthly child payments of $250 or $300 permanent would reduce parental employment by 2.6%, which is equivalent to approximately 1.5 million workers.
Since every dollar older Americans and those with disabilities receive in Social Security benefits comes directly from current employees’ paychecks, fewer employees would mean fewer contributions and a faster depletion of the Social Security trust fund.
With assumptions at the lower end of that range — a drop from 6.2 million full-time jobs — the Heritage Foundation’s Social Security model predicts a loss of $25 billion in payroll tax revenue by 2022 and $289 billion in lost revenue between 2022 and 2031.
This decline in employment and Social Security income would result in Social Security’s combined retirement and disability insurance funds being exhausted three months earlier. Currently, Social Security trustees are projecting insolvency for the combined trust funds sometime in 2034.
With benefits limited to income inflow after insolvency, fewer employees would translate into larger benefits. We estimate that cuts to the combined Social Security and disability insurance programs should be 26% instead of 22% as currently projected. That increase would mean $750 less a year in Social Security benefits for the average retiree.
And in total, a 26% cut in monthly benefits would reduce the average retired worker’s benefits by $405 a month, from $1,560 to $1,155.
Rather than create new rights programs that can provide families with hundreds of thousands of dollars in new taxpayer-funded benefits, policymakers must first ensure that existing U.S. rights programs will be there for those who need them.
To strengthen social security, policy makers should switch to a better focused program that would help lift more people out of poverty while also enabling individuals to retain more of their income. That includes moving to a universal anti-poverty benefit, using a more accurate inflation index, modernizing the program and giving a ownership option.
According to the Heritage Foundation’s social security model, these changes would not only solve the shortcomings of Social Security, they would also allow for a reduction of about 25% in the Social Security tax rate, allowing all Americans to keep more of their income to save and spend as they see fit for them and their families.
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