Minutes from February 9, 2011

Call to Order, 11:30 am, Kathleen Gehr

Reading of the Minutes: Katherine Hegemann, Accepted as given

Discussion of How to Prevent a Social Security Shortfall:

Will the 2% reduction of employee FICA taxes hurt Social Security?

The group believes it will.

Will the 2% reduction be allowed to expire at the end of one year?

The group was not sure but felt probably not depending on the state of the economy.

Increase worker and employer contributions.

• Workers and their employers currently pay 6.2 percent of earnings up to $106,800 into the Social Security system, or a maximum of $6,622 each per year. Self-employed workers are required to pay 12.4 percent of pay up to the same cap. If the contribution rate were increased by 1.1 percent to 7.3 percent of earnings, Social Security’s projected deficit would be eliminated. Using this fix, a worker making $43,451 in 2010 would face a tax increase of $478 a year, or $9.19 a week, and the employer would face an identical increase.

Modify the Social Security tax cap:

• Workers pay into the Social Security system on earnings up to $106,800 in 2010. About 83 percent of worker earnings were subject to Social Security payroll taxes in 2008. If all earned income above $106,800 annually were subject to Social Security contributions but did not count toward benefits, Social Security’s projected deficit would be completely eliminated. If the higher income counted toward Social Security benefits, about 95 percent of the shortfall would be absolved. Other ideas: apply a new Social Security formula to earnings above the current cap or raise the amount of the income cap to apply to 90 percent of all worker earnings.

The group took these two together. However, the problem of the cap should be resolved before employee and employer contributions are raised. The consensus was that the cap should be removed.

Average in more working years:

• Social Security checks are currently based on an average of a worker’s 35 highest paid years in the workforce. Those who haven’t worked 35 years have zeros averaged in. The averaging period could be increased to 38 or 40 years, which would reduce the deficit by 14 and 23 percent respectively.

The group believes this is not a good idea. The present number used is 35 of the highest paid years. We believe this is enough.

Decrease the cost-of-living adjustment:

• Social Security benefits are currently automatically adjusted each year to keep up with inflation, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers. Reducing the cost-of-living adjustment by 1 percent each year would eliminate 78 percent of the deficit. Even knocking half a percent off the annual adjustment would reduce the deficit by 40 percent. An alternative way of measuring the cost-of-living could also be used.

The possible reduction of COLA from 3% to 2% was unanimously rejected.

Include more workers:

• Most Americans are already covered by the Social Security system. About 94 percent of workers pay employment or self-employment Social Security taxes. But some Americans are currently exempt from Social Security taxes including state and local government workers participating in alternative retirement systems, federal workers hired before 1984, college students working at academic institutions, and ministers who choose not to be covered. However, this fix would need to be applied in conjunction with others. Extending coverage to workers who previously didn’t participate would only reduce the Social Security shortfall by about 9 percent.

The group felt this was one way to help Social Security solvency.

A legacy tax:

• The first retirees who received Social Security payments from the system didn’t pay Social Security taxes throughout their entire working life, which contributes to Social Security’s fiscal problems. Several ideas have been raised to counteract this legacy cost including a 3 percent legacy tax on earnings above the current tax cap of $106,800 or on adjusted gross income over $125,000 for individuals and $250,000 for couples. This legacy tax would eliminate close to a third of Social Security’s shortfall. Another proposed idea is directing estate tax revenue into the Social Security trust fund, which would eliminate 20 percent of the fund’s deficit.

This is a complicated option but would help solve the problem.

Diversify investments:

• Part of the Social Security trust fund could be invested in equities to try to earn returns that would help to sustain the Social Security program. Investing 15 percent of trust fund assets in equities would reduce the deficit by 14 percent if a 9.4 percent rate of return was achieved. If 40 percent of the trust fund were shifted into the stock market and earned 9.4 percent annually the deficit could be reduced by a third. Of course, this also exposes the trust fund to increased liabilities in times of economic downturn.

The group totally rejected this solution.

Resolution by Kathleen Gehr: The Democratic Women of Johnson County, Tennessee will disband as of February 9, 2011.

Motion to Disband: Unanimously passed.

Resolution by Katherine Hegemann: After all payments are made from the DWJC bank account, the funds will be donated to Johnson County Safe Have.

Motion for DWJC funds: Unanimously passed.

Meeting adjourned at 12:30 pm and was followed by a light lunch.

Submitted by: Katherine Hegemann

Date: February 9, 2011