Two Senators Have A New Proposal To Fix Social Security

Two senators from opposing parties have come together to work on a proposal they say could rescue Social Security.

Senator Bill Cassidy, a Republican from Louisiana, and Senator Tim Kaine, a Democrat from Virginia, presented the proposal for a new investment fund in an opinion piece published by The Washington Post on Tuesday. The pair wrote that their proposal would “infuse much-needed money into Social Security.”

Social Security is currently paying more out than it is taking in due to an aging working population, which could result in gaps in benefits for its beneficiaries. Congress must act to avoid the shortfall by finding more income or cutting benefits.

The senators proposed creating an additional fund that would be invested in stocks, bonds, and other investments and generate a higher rate of return than the current trust funds. Currently, Social Security’s trust funds, which trustees recently said could be depleted in less than a decade, are exclusively invested in special-issued U.S. government bonds that are less risky but yield low returns.

The senators said their plan for an investment fund would run parallel to the current trust fund, not replace it. Cassidy and Kaine believe the plan would ensure no one on Social Security or nearing retirement would see any change to their benefits. 

In order to do so, the pair suggests a $1.5 trillion up-front investment to kickstart the fund and give it 75 years to grow. While the Treasury would have to temporarily provide benefits to beneficiaries, the new fund would pay it back once those 75 years are up and supplement payroll taxes to fill a gap in the future.

Some think that the program doesn’t have the time this proposal requires.

“State and municipal pension systems have attempted similar maneuvers by issuing pension obligation bonds, and in many cases, the financial markets turned against them,” said Teresa Ghilarducci, labor economist and professor of economics and policy analysis at the New School for Social Research.

“This kind of plan might have made more sense decades ago, when the trust fund had a longer time horizon to invest, reduce risk, and maximize returns,” she said.

Gopi Shah Goda, the director of the retirement security project at Brookings, said the proposal could introduce new risks to the funding structure and would fail to tackle the program’s structural imbalances.

“Borrowing funds in the way the proposal suggests would likely raise interest rates and slow growth, and avoids the difficult but important work of modernizing the program so that it continues to provide important protection to seniors in a sustainable manner,” Goda said.

One thing the proposal has going for it is a name from both parties. But just because members of both parties favor the plan, it doesn’t mean it’ll be an easy road for it to become law, experts said.

“Kaine has a solid reputation as a bipartisan negotiator. Cassidy has an in-depth knowledge of Social Security program details,” said Certified Financial Planner Mary Beth Franklin. “Whether the idea can garner sufficient bipartisan support on the hill, I can’t say.”

While both sides broadly agree that action is needed to bolster the program, experts said there may not be a consensus on the next step.

“There is widespread recognition that action needs to be taken on Social Security,” said Stephanie Kelton, a professor of economics and public policy at Stony Brook University. “I think both sides understand that it’s in their best interest to find the pathway forward. There is no financial reason there should ever be cuts to Social Security.”