Evaluating 2024 Social Security Reform Proposals

Republicans and Democrats are extremely far apart on how to reform the Social Security system and Medicare. This post examines and evaluates various proposals.


  • Two candidates, Haley and Christy, support phased in increases in retirement age and other changes in benefits for younger workers
  • Three candidates, Trump, DeSantis, Ramaswamy, do not support immediate actions.
  • Proposals by Democrats involve substantial increase in taxes on Americans with relatively high income and include expansions in benefits.
  • Republican proposals would not prevent automatic benefit cuts that are projected to occur under current law.
  • Democrat proposals could lower economic growth, reduce fiscal discipline, and increase the dependence of the elderly on Social Security.
  • There is a need for a compromise proposal that adjusts both benefits and revenues combined with improvements and expansions of private savings for retirement targeted towards households struggling to save.


The October 2024 Presidential debate helped clarify where Republican candidates now stand on entitlements – Social Security and Medicare.

Two candidates, Haley and Christie favor a higher retirement age for young adults now entering the workforce and for means testing Social Security benefits.  Haley also called for adjusting the rules governing the Social Security cost of living adjustments.

Haley supports increased use of Medicare Advantage plans to address imbalances with the Medicare Trust fund.

Trump, DeSantis, Scott, and Ramaswamy all appear to oppose reductions in Social Security benefits.

Ron DeSantis has said on the campaign trail that he would not mess with entitlements, but he had previously voted for an increase in the retirement age while in Congress.  DeSantis stated that part of his opposition to now raising the retirement age stems from recent declines in life expectancy.

Scott was concerned about the increase in the retirement age on people in jobs that required physical labor. 

Both Scott and Ramaswamy argued that cuts to the discretionary budget and economic growth could alleviate pending problems with the Social Security trust fund.  

The Biden Administration and Congress are grappling with the budget and there is very little active debate over ways to deal with the impending projected automatic benefit cuts to Social Security or long term reform proposals.

The Biden budget proposals includes higher taxes to fund Medicare but does not include a similar tax increase for Social Security.    Haley is supportive of increased use of Medicare Advantage plans to reduce costs.

Most Democrats do not support reductions in benefits or increases in the retirement age.  The approach preferred by many Democrats in Congress summarized here involves several substantial new taxes and more generous benefits.

The Congressional proposal includes three tax provisions. It would subject all wage income over $250,000 to the combined employer and employee Social Security tax.  Apply a 12.4 percent tax on investment income for high earners as stipulated by the provisions of the Affordable Care Act.  Apply a 16.2 percent net investment income tax on owners of S-corporations and limited partners.

The Congressional proposal includes several increases in benefits both for existing beneficiaries and future beneficiaries, increase the special minimum benefit, bases cost of living adjustments on a price index that reflects purchases by the elderly, and expands benefits for children of disabled and deceased workers until age 22.


The Republican Proposals

One of the reasons why Social Security should be a high priority 2024 issue is that under current law and current revenue projections Social Security benefits will be automatically cut by 23 percent in 2033.   None of the Republican proposals would prevent projected automatic benefit cuts.

The proposals for a higher retirement age applied to new entrants to the workforce offered by Haley and Christy would not prevent the automatic benefit cuts in 2034 because these future cuts would not be implemented until the new cohort of workers retires in 30 or 40 years.   

Proposals to do nothing will not prevent the automatic benefit cuts if trust fund revenue projections are accurate.   The idea that Republican policies that lead to higher economic growth will lead to increased trust fund revenues that will increase trust fund revenue is wishful thinking contradicted by the past relationship between Republican policies and economic growth.

The implementation of automatic benefit cuts to Social Security would be an economic disaster leading to a sharp decline in aggregate demand and a sharp increase in poverty among the elderly.  The failure to implement meaningful changes to either Social Security benefits or taxes sooner rather than later will lead to a political and economic shock substantially more severe than the annual debt crisis or government closure disputes. 

The proposal to increase the retirement age for younger workers is premised on the view that younger workers will be able to increase private retirement savings prior to retirement.  However, younger workers are failing to save for retirement due to record levels of student debt and increased use of retirement funds prior to retirement.    

It is very difficult to evaluate proposals for means testing of Social Security benefits without knowledge of the means testing formula.  Specifically, how many high-wealth households will be ineligible for Social Security benefits under the proposal.  Also, the proposal could reduce charitable gifts since many wealthy families give away most of their wealth.

The Democrat Proposals:  

The Social Security Administration projects the Congressional reform package would lead to a balanced trust fund for a 75 year period. However, some of the revenue would likely be diverted to Medicare given that the current Biden budget includes a proposal to raise the high-earner tax on investment income from 3.8 percent to 5.0 percent for Medicare related expenses.   

Revenue will invariably be lower than projected by forecasters.  High earners will respond to the new taxes by increasing contributions to tax-deferred accounts, which reduce AGI and investment income.  The tax increases in the Democrat proposal could reduce economic growth, which could reduce projected improvements in trust fund solvency.   

The new Social Security taxes would likely motivate future congresses to spend more or reduce general taxes applied to the elderly since money is fungible and the new taxes reduce the amount of funds the Treasury must borrow from the public.

The Democrats claim that the new taxes only impact rich people but some people who have high income in one or a few years do not have high lifetime income.  An analysis of lifetime earnings and lifetime tax payments could reveal that the Democrat tax proposals adversely impact some households with modest lifetime earnings.

From a perspective on inter-generational fairness, it is difficult to justify the use of taxes on the next generation to fund current increases in Social Security benefits, even current wealthy Social Security beneficiaries.   

The proposal for linking cost of living adjustments to a price index geared towards a basket of goods consumed by the elderly does not account for the fact that due to differences in insurance coverage elderly American households have lower out-of-pocket health costs than working-age American households.  Go herefor an explanation.

The expansion of Social Security benefits for children of disabled and deceased workers would affect a small slice of the population in need while ignoring the large number of young adults who are leaving college with substantial student debt.  The proposal is not means tested, hence some of the beneficiaries would be quite wealthy and not in need of the additional funds.

In general, the Sanders Social Security reform package would increase the dependence of Americans on the Social Security system.  They are likely motivated by previous efforts described here, which appear to primarily benefit the affluent.  My view is that progressive changes to private retirement savings are an essential part of a Social Security reform package.

An Alternative Approach: 

An alternative approach would include both relatively minor phased in adjustments to the retirement age, new revenue sources for both Medicare and Social Security, and new incentives designed to increase private retirement savings by younger workers who must prepare for a higher retirement age.

Relatively minor additional taxes are needed to prevent automatic cuts to the Social Security in 2034 and the adverse impact of these benefit cuts on the general economy and the elderly poverty rate.

The existence of new revenue will reduce the increase in the future retirement age and reduce pressure on future workers who due to health considerations cannot increase the length of their careers.  This combination will reduce future demand for disability benefits relative to the Haley and Christy proposals.

A strong argument could be made that policies expanding private retirement savings among the portion of the population that is unable to save for retirement would be more effective than expansions of Social Security benefits.  These reforms include:

  • Savings incentives for new entrants to the workforce as early as high school.
  • Incentives for automatic enrollment and contributions to Roth IRAS for workers without employer-based retirement plans.
  • Changes to Flexible Savings Account and Health Savings Account plans to reduce loss of retirement income due to out-of-pocket health expenditures,
  • Limited student debt relief households to facilitate increased retirement saving.

A first draft of an alternative approach to Social Security reform was published here.

Electric Vehicles Versus Hybrid Vehicles

Biden Administration policies and tax incentives favoring electric vehicles over hybrid vehicles will backfire. The subsidies are too expensive, the demands on the electric grid too high, the dependence on foreign sources of lithium problematic, and the battery disposal problem unresolved.

Current environmental policy in the United States, both subsidies and regulations, favor the growth of electric vehicles over hybrid vehicles.  

Is this focus on EVs over hybrids misguided?  

Have policy makers underestimated economic and environmental costs associated with the use of EVs and the transition?  

Would subsidies for hybrid vehicle provide a quicker more economically efficient path to a clean energy future?

Background on Incentives and Regulations:

This IRS bulletin describes a new clean vehicle tax credit with a new tax credit, up to $7,500 per vehicle, for new clean EV vehicles purchased after 2023.  Certain vehicles including foreign built vehicles and vehicles with prices above a cap are ineligible.  Electric vehicles (EVs) are more likely to be eligible for the clean vehicle tax credit than plug in hybrid electric vehicles (PHEVs).  Car and Driver reports that 7 PHEVs are eligible for the clean tax credit compared to 15 EVs.  Hybrid vehicles without a plug in feature are not eligible for the clean tax credit even though they get excellent gas mileage.    

The infrastructure law included $5.0 billion in funds for states to build charging stations for EVs and an additional $2.5 billion for grants administered by communities.  These subsidies benefit plug-in vehicles but do not benefit non-plug-in hybrids.

California emission rules requires that all vehicles sold in the state by 2035 will be zero emission vehicles (ZEV).  ZEV vehicles include EVs and plug in hybrids but do not include non-plug-in hybrids.   The super ultra-low emission vehicles on this list will no longer be available for sale in California or on states with emission standards linked to the California standard.

Analysis of incentives and regulations:

The EPA strongly supports the transition to EVs despite evidence indicating benefits of EVS relative to hybrids are low and the adoption of EVs will be slower and more costly to the economy than the adoption of hybrid vehicles.

Some hybrid vehicles like the Prius have a fuel efficiency of over 50 miles per gallon and this article indicates the difference in EV and hybrid emissions is small. EV emissions are likely higher than hybrid emissions in states where the electricity is obtained from coal-powered plants.

The manufacture of EV batteries creates substantial emissions, which partially offset the lower tailpipe emissions.

Pollution from lithium mining has had devastating environmental impact on the developing countries that are the source of this material.

Currently, around 5 percent of EV batteries are recycled.  Unless recycling is increased there will be substantial health and environmental problems associated with battery disposal.

The limited range of EV batteries would result in multi-vehicle households using a traditional EV on longer trips, thereby, reducing the lifetime emission reductions from the purchase of EVs.

There are wide differences in opinion on the likely adoption rate of EVs.

Despite very large subsidies and favorable regulations described above, some recent evidence supports the view that EV adoption will be slower than anticipated.  This CNBC article found two reasons — concern about public charging and the EV range on long trips – for low EV sales.  Companies like Hertz have overstocked EVs given current demand.

A rapid adoption of EVs could lead to electricity outages if the grid is not improved and expanded.  Again, the environmental gains from the growth of EVs depends on the growth of clean energy sources, which is uncertain.   Failure to expand the electricity grid will slow the rate of EV adoption and increase cost of their use.

China is the major source of most materials used in EV batteries.  The growth in the adoption of EVs could increase the dependence of the United States on China.  An increase in the cost of materials like lithium used in EV batteries could slow the rate of EV adoption and increase costs.

It is highly possible that a smaller subsidy targeting hybrids and ULEVs over EVs will lead to a faster transition to cleaner vehicles than the current approach.

Concluding Remarks:  Most EV buyers and recipients of EV subsidies are relatively affluent.  I would guess that the average Tesla buyer is wealthier than the average Prius buyer.  The Prius buyer did not have to be bribed to reduce her carbon footprint.  I have a hard time justifying government subsidy for clean cars when some important health care subsidies phase out in 2024.  A likely scenario from current policy is large subsidies leading to increased debt, which provide only modest environmental benefits. 

Authors Note:  LinkedIn members should subscribe to Insightful Memos.  Many posts like this one on the difference between the cost of living and inflation can be found at Finance Memos.

Observations on October 7 political aftermath

A strong center is needed in both parties for America to be a positive force in the world.

Observations on October 7 political aftermath 

It is instructive to compare Donald Trump’s and Hillary Clinton’s reactions to October 7.

Trumps’ response was to call the Lebanese terror group Hezbollah “very smart” and to call Israel’s defense minister a jerk. 

Clinton’s response was on calls for a cease fire in Gaza would be as “gift” for the terrorist government and that people calling for a ceasefire don’t know Hamas.

Also, Hillary Clinton’s response to a heckler calling her to denounce Biden as a warmonger was “Sit Down.”  

Americans who support Israel and Ukraine and believe the United States can do good across the world have a huge problem with the titular head of the Republican party but there are bad actors in both parties.

A substantial share of the Republican party has no principles, no believe in human rights, supports Putin and tyrants, and is entirely transactional in their governing approach.  Today 93 House Republicans want to abandon Ukraine.  Tomorrow they could, depending on the polls du jour, abandon Israel.

A substantial share of the Democratic party is either blatantly antisemitic or virulently inconsistent.  Even after the horrific attack 15 House Democrats did not support a resolution supporting Israel and condemning Hamas.  

The mantra “Free Palestine from the river to the sea” is a call for genocide.  

The claim that October 7 needs to be examined in “historical context” is bizarre and inconsistent with the way any other conflict in the world is considered. 

How would Turkey or Iran respond to violence by Kurds?  Where are the calls for “historical context” in these instances or in any of a dozen other situations around the globe?

The calls for historical context ignore the wars and the violence on both sides which exacerbated the Palestinian exodus.  Historical context does not clearly support the Palestinian cause and provides absolutely no rationale for October 7.

So, supporters of Israel, Ukraine and the cause of freedom have opponents in both the Republican and Democratic party.  The most viable solution is a stronger bipartisan center, perhaps created through a third party.

Authors Note:  The author is an economist.  One of his latest articles explains why people are so unhappy about the state of the economy even though aggregate economic numbers appear strong.