Sens. Angus King and Bill Cassidy, a Maine independent and a Republican from Louisiana, respectively, are leading a group of lawmakers in a proposal to raise the full retirement age to around 70 from the current 67 and create a sovereign-wealth fund that would help fund Social Security, according to a media report.
Among options being considered are changing the way Social Security calculates monthly benefits to reflect the number of years spent working and paying into Social Security, rather than the existing formula that calculates benefits based on a worker’s average earnings over 35 years, according to a report by the news website Semafor, citing two people described as having been briefed on the plan.
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The purported plan also includes a proposed sovereign-wealth fund that could be funded with $1.5 trillion or more in borrowed money, according to Semafor. If the fund failed to generate an 8% return, both the maximum taxable income and the payroll-tax rate would be increased to ensure Social Security stays solvent for another 75 years.
The offices of King and Cassidy declined to comment specifically on the report.
“This is an example of two leaders trying to find a solution to a clear and foreseeable danger. 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,” Cassidy and King spokesmen said in a joint statement provided to MarketWatch.
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“The Social Security trust fund is going insolvent in 11 years. Senators Cassidy and King have been working on a legislative solution — which has been reported in the past. The plan is not finalized,” representatives for Cassidy and King said in the email.
If no action is taken, the trust fund for Social Security will be unable to pay out 100% of benefits starting around 2035. Enacting changes to the federal retirement program often is referred to as the “third rail of politics” because the issue is so politically charged.
The last major changes to bolster Social Security’s finances were made in 1983. Part of those changes included a gradual increase of the full retirement age to 67 from 65.
Alicia Munnell, director of the Center for Retirement Research at Boston College, said raising the full retirement age for Social Security should be viewed as a benefit cut. “Anything that involves raising the retirement age is a benefit cut, and it’s particularly pernicious because it hurts the vulnerable,” Munnell said. “It’s a poor lever to use.”
Munnell expressed openness to and interest in the idea of a sovereign-wealth fund to help fund Social Security, adding that a similar move has been successful in Canada, for example. “Some equity component is a good idea,” Munnell said.
President Joe Biden recently brought Social Security into headlines when he vowed to protect Social Security and Medicare during his State of the Union address and following remarks, observing that at least two Senate Republicans are on the record as open to the program’s being on the chopping block.
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The Biden White House is against cutting benefits and sees an increase in the retirement age as such a move, a White House official said Wednesday.
Bharat Ramamurti, the deputy director of the National Economic Council, who joined MarketWatch’s Victor Reklaitis for a live Q&A session on Wednesday, said he had not seen the details of the senators’ proposed plan, but said increasing the retirement age is “effectively a benefit cut.”
The potential proposal from the group led by King and Cassidy is among several options circulating in Washington.
A recent proposal from Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders, a Vermont independent who like King caucuses with the Democrats, seeks to shore up Social Security by raising the top rate of income tax by a third, and the top rate of capital-gains tax by more than a half.
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MarketWatch’s Robert Schroeder contributed to this report.
This article was originally published by Marketwatch.com. Read the original article here.