There are whispers on Capitol Hill of a rare bipartisan effort to overhaul Social Security as the program is set to go broke in less than 10 years
A group of senators is considering a sovereign wealth fund (SWF) to prevent Social Security insolvency, Semafor reported.
A SWF is a government-backed investment fund, and its profits would be used to pay Social Security benefits.
If such a SWF failed to generate profits, the bipartisan group of senators are amenable toward tweaking payroll taxes.
Congress and President Joe Biden have been scrambling to address Social Security's impending insolvency.
But a group of bipartisan lawmakers may have come up with a compromise in the form of a sovereign wealth fund (SWF) — something that the United States does not currently have at the federal level. SWFs are typically investment funds owned by the government, according to the Federal Reserve. In this case, such investments would be used to fund Social Security payments.
That's according to Semafor's Joseph Zeballos-Roig, who reported this week that a group of senators led by Sen. Angus King, an Independent from Maine, and Sen. Bill Cassidy, a Republican from Louisiana, is considering a SWF to fund Social Security. That's in addition to reports that the group wants to eventually raise the retirement age to 70 years — or close to it — as well, which could effectively lead to benefit cuts for future retirees.
Given that the potential of such a fund depends on its stock market success, Zeballos-Roig reports that senators are amenable to an increase in the payroll tax rate and the amount of income subject to those taxes if the fund's returns fall short of expectations.
The goal is, members of the group told Semafor, for Social Security to be solvent for 75 more years, at least.
Senator Mitt Romney, who has been attending the bipartisan talks, told The Hill's Aris Folley this week that a SWF would allow the US "to be able to borrow at low interest rates and invest in the growth of our economy, and perhaps economies of other nations as well."
"That's what other retirement funds do around the world, in corporations and in the railway world, and it creates a substantial source of revenue," he said, adding that if the investments "didn't do terribly well, we would kick in through other sources and make sure that we don't threaten in any way the benefits of recipients."
Semafor reported that a federal SWF would potentially receive an initial investment of $1.5 trillion or more; if that initial influx of cash doesn't see at least an 8% return, the plan would allow raising the maximum taxable income and payroll tax rate ceilings. The current system taxes workers' first $160,200 in earnings, and many Democrats have called for changing that cap. Sens. Bernie Sanders, Elizabeth Warren, and other Democrats, have championed lifting the cap, with incomes over $250,000 being subjected to payroll taxes. Warren and Sanders reintroduced that legislation this month.
"This is an example of two leaders trying to find a solution to a clear and foreseeable danger," spokespeople for Cassidy and King told Semafor. "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."
There's evidence that shows that government-run investment funds can be successful. In a state-run SWF in Alaska, for instance, residents receive an annual disbursement from the government that works as a guaranteed income program funded by Alaska-owned oil companies. Residents typically get as much as $2,000 a year, and as low as $800 in years with lower gas prices. A 2016 study by the University of Alaska showed that the fund reduced poverty by up to 20%.
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