Fixing Social Security- Once and for All
It’s becoming increasingly more evident that we have a Social Security issue in this country. According to Carolyn Colvin, acting commissioner of Social Security, “Social Security is fully funded until 2034, and after that, it is about three-quarters financed.” However, there are options for changes to make now, so that Social Security will remain in our future.
The issue is that Social Security runs on a pay-as-you-go system, or simply put, workers are getting their payroll taxed while at the same time, others are receiving benefits. This tax is about 10.6% of earnings. For years, payments into the system were greater than benefits paid. However, a few years ago, that changed. Benefits paid out now exceed money coming in by about 3.7%. That shortfall is made up by the Social Security trust fund – which accumulated years of payroll tax surpluses. Much like our bank account, the trust fund will not last forever if money withdrawn is greater than deposits.
Once the trust fund is depleted, Social Security recipients would receive whatever is collected by current workers. Guesstimates are that if nothing is done, in around 2035, recipients would start to receive 25% less than promised.
A brief published by the Center for Retirement Research at Boston College provides alternative measures that would solve this issue. The brief suggests one solution is to raise the payroll tax rate or eliminate the payroll tax cap or some combination of the two.
The paper estimates that if just payroll tax rates are increased, the top quartile of workers would pay for 54% of restoring the system to solvency. If tax rates are increased and the wage cap is eliminated, the top quartile would be responsible for nearly two-thirds of the cost to restore solvency.
Social Security has always been considered the “third rail” of politics. Touch it and your political career is over. However, the current path is not sustainable. The longer we wait to take action, the more severe the corrective action will be.
