Policy Options & Analysis

The Center for Retirement Research argues that over 50 percent of today’s workers will not have adequate
income when they retire, and this number will jump to approximately 66 percent if you take health and longterm care costs into account. The contention is that hourly wage earners will not have the ability to replace
disappearing pensions and lower net Social Security benefits (primarily because of health care and drug costs)
with private savings. This is attributable primarily to the fact that median household incomes have been
stagnant over the past 40 years. At the same time, many core expenses such as housing, health care, and
education have grown substantially.
According to a recent report released by the trustees of the Social Security Trust Found, the Social Security
Administration is spending more each year in benefits than it is taking in regarding payroll taxes and money
earned on trust fund reserves. As a result, Social Security reserves are projected to be exhausted by 2034.
Congress, ready or not, will be forced to address this issue shortly because the first generation of workers
affected by these converging trends — the decline of employer pensions, phased-in cuts to net Social Security
benefits, and decades of slow and unequal wage growth-are just now starting to retire. What options are
available to avert potential retirement woes of working-class individuals who will be retiring over the next two
decades? Among the policy options now being considered are:
Raising payroll taxes,
Increasing the annual wage ceiling on which payroll taxes are paid. The ceiling for 2020 will be $142,800,
Basing the annual cost-of-living increase on a less-generous measure of consumer prices than is now used,
Implementing an across-the-board decrease in retiree’s benefits,
Reducing benefits for higher-paid earners,
Raising the retirement age, or
Increasing taxes on high-income wage earners.
The impact of these proposed changes on Social Security System is available from an interactive “Social
Security Tool” that has been developed by the Wharton School at the University of Pennsylvania.* This tool,
allows an analyst to make change in six program features (with three possible changes to each feature). Your
responsibility, as a newly hired staff member by Senator Rawson, your task is to assess how various
alterations to the Social Security program will impact program finances. In your analysis, you need to consider
the demographic changes that are taking place in the United States