Possible fixes for the Social Security Program

Lawmakers have 12 years to fix the Social Security program before it can no longer pay full benefits, according to the most recent Social Security trustees' report.
After 2034 the $2.9 trillion trust fund will be depleted, and unless something is done to address it, Social Security would have to rely solely on current tax income to pay benefits. This income would result in an ability to pay out only three-quarters of the scheduled benefits.

The University of Maryland's Program for Public Consultation surveyed over 2,500 registered voters through an online 'policymaking simulation' process. The survey found that a large majority of both Republicans and Democrats favored various proposals to increase revenue, trim benefits, and even increase benefits for low-income earners. These measures supported in the survey could be able to eliminate 78-95% of the shortfall.

Raising the Payroll Tax Cap
Overall Support: 81% (Republicans 79%, Democrats 78%)
Currently, only the first $147,000 of income is subject to the payroll tax.
Social Security was originally implemented with the aim of holding aside a certain percentage of people's income so that it could be paid back to them later when they got older and retired. Since high income earners already were entitled to a large payment, it did not make sense to tax their income above a certain amount, since withholding more of these person's money was seen as unnecessary. Raising the payroll tax cap, while not increasing the benefits back to these higher income taxpayers when they retire, would amount to a wealth redistribution scheme, something the original program was not really specifically intended to do.

Reducing Benefits for High Earners
Overall Support: 81% (Republicans 78%, Democrats 86%)
If they're going to reduce benefits for high earners, then it might just make more sense to eliminate the payroll cap, and just tax all income a certain extra amount, without limit. Special interests will probably try to derail this, since they would prefer the tax burden to fall on the upper middle class rather than on the very wealthy.

Raising the Retirement Age
Overall Support: 75% (Republicans 75%, Democrats 76%)
There is a high likelihood politicians will look to this as an "easy solution". After all, it will seem more palatable to the public because they could do this without making it look like there is a cut to the amount of benefits. It sends a message to people: "Work longer."
Unfortunately, the individuals who will need the payments most are those with medical issues or older people facing career loss, who are forced into early retirement and do not have much of a choice to be able to just work longer. For these people in vulnerable situations, raising the retirement age could be devastating for them.

Increasing the Payroll Tax Rate
Overall Support: 73% (Republicans 70%, Democrats 78%)
Currently, the payroll tax rate that funds Social Security stands at 6.2% of wages, up to the first $147,000 earned. Increasing the tax rate to 6.5% would eliminate 16% of the estimated shortfall.

 

I for one am in favor of increasing the payroll tax rate.

Of all the proposals, it's the simplest, it doesn't change the character of the program, and doesn't make things worse in the long run. Of course the problem with it is that it's not a real fix to the program, but it's very apparent that we're not ready for that sort of adult conversation yet, and maybe never. The Trustee report says we have twelve years? OK let's raise the payroll tax rate just enough each year, to buy us another year. If we can keep doomsday held off at 12 years for the foreseeable future, that's not nothing.

 

That seems like a good idea to me (or the best idea out of the proposals and seems to make the most sense), but progressives will probably not be for it because they will view it as a "regressive tax", and will probably try to divert the public policy debate to other proposals.

The proposal might hurt very low income people though, because it may be hard for them to afford the tax increase, so some sort of exception might have to be made for them. Either reduce their benefits in proportion to the how much their payroll tax rate is lower than the new level, or perhaps have the government throw a little extra money from the general fund. I suspect that may be the only sticking point, and will require a creative solution.

Maybe progressives could be convinced to support it if it were combined with a small temporary cut to the benefits of higher income earners, to help bring the program back to sustainability, and as a sort of political compromise.

 

Well progressives won't support it because they only want to raise FICA in combination with increasing benefits, which isn't realistic but...eh progressives.

Based on this forum, the most popular reform is raising the payroll cap tax, but the problem is that increases benefits for...you guessed it, the rich by having more of their income, which is used to calculate benefits, brought under FICA. It does short term bring more money in but long term it makes the program worse because you have to pay higher benefits for the rich.

 

Most likely there will need to be both cuts in combination with tax increases.

Yes, and there's really not much of need for higher income earners to have so much of their payroll retained, because the benefits they will already get are pretty substantial. It would be kind of redundant and pointlessly unnecessary. There was a reason SS had a payroll cap amount in the first place.

If the payroll tax were increased on them without increasing their benefits in proportion (i.e. if they don't get all their money back later), then it would essentially turn SS into a wealth redistribution system, and begin to fundamentally change the nature of the program.

The Left is probably only going to support raising the payroll cap amount in combination with decreasing benefits for higher income earners.
But I think it might also be possible they would support raising the payroll cap amount alone on its own, even though as you pointed out that isn't sustainable, because they would see that as a way to kick the can down the road, and let others have to deal with the problem later in the future. It would be a way to raise taxes now without triggering too much outrage. Then they would just not pay out all the obligations in the future, at that point claiming they have no choice. A cheap & dirty political tactic.

 

Frankly I don't think the left wants to fix the problem at all. I think what they really want to do is just wait until the day before the program goes bankrupt ram their own fix through with the ensuing panic. Who knows what that would look like.

 

The Social Security program (which provides for older retired people in the United States) is running out of money, and will need either an increase in payroll taxes or a separate injection of money from the general fund (the normal government budget) to be sustainable.
The Social Security program fund is going to need about $2.9 trillion by 2034, $4.9 trillion by 2037, looking further out.

It should be pointed out this is only going to exacerbate the government's national debt problem, adding another front of liabilities onto the government budget.

They estimate it would require a payroll tax increase of 2% to deal with the deficit of Social Security funds. Keep in mind that would be on top of any other tax increase needed to deal with the national debt.

Raising the payroll tax rate by 2% would be seen as a lot. While it could theoretically be an option to solve the problem, I think it's a sure fact they will make a much smaller broad payroll tax increase and look to other ways to cut costs (or possibly target higher earners with tax increases). The current political talk suggests the general payroll tax rate might only be increased by 0.5%.

I strongly disagree with the following policy, but if I were to predict what is likely going to happen, they are probably going to increase the retirement age, and increase the financial penalties for beginning to pull out earlier. That combined with a 0.5% payroll tax increase, bringing it up to 6.7%.
There might also be a small series of emergency one-time injections of money into the program from the general fund. I doubt this would be more than $300 billion. The U.S. isn't going to have the extra money at that time to pour into this, and there will be a tendency to try to make the program self-sustainable with its own special tax that it has.
The current retirement age is 67 for those born in 1960 or later. They might increase that to 69. Currently people can begin pulling out at 62 but suffer a decrease in payments (30% lifetime reduction). They might raise that minimum to 63.

 

90% of Americans pay the SS tax for every dollar they earn, the rich can too, raise the cap

 

all we have to do is add a 2% to the bend points

this is based on your highest years earnings divided by 12 + the wage index to compensate for inflation

say anythign earned over 15k a month gets 2%

 

Could you explain to us, in really simple terms that anyone can understand, what that would do?

It sounds like you are saying increase SS taxes on income.

 

And would these rich people end up getting an increase in benefits, in proportion to their increase in SS taxes?

I mean that was what SS was originally designed to do.

If the answer is "no", then there is almost no point increasing SS taxes specifically. Then you might as well just increase the income tax in general to pay for this.

 

I thought I did below that

https://bipartisanpolicy.org/explainer/social-security-benefit-formula/

current

• 90% of the first $1,115 of AIME
• 32% of AIME between $1,115 and $6,721
• 15% of AIME over $6,721 (up to $13,350 in 2023, equivalent to the taxable maximum)

proposed

• 90% of the first $1,115 of AIME
• 32% of AIME between $1,115 and $6,721
• 15% of AIME over $6,721 (up to $13,350 in 2023, equivalent to the taxable maximum)
• 2% anything above that up to the new cap

 

yep, at 2%

the point is to save SS

 

The pay tax on every dollar now - Top 1% pays 40% of all income tax. Bottom 50% pay about 3%.
Thing about Social Security is that it is tax, not a saving account. The dollars that com in go right back out to current retirees.
Actually benefits are determined by SS Trustees.

One thing that historically would work is investing the income in stock market. Before you scream and shout ask yourself how did all those "rich people" get rich - hint stock appreciation from the businesses they create or invest in. Remember we're also talking LOOOOOONNNNNGGGGG range investing; find yourself a DJIA chart and see if you can find a loss over the period of a standard working career; 4-6%. FICA return is 1% or less.

 

see #814: Imagine your retirement savings growing like this.

 

actually the point is to create a retirement system that lasts, and proves reasonable income for workers. SS has been modified many times and we're still up a creek.

 

it's how much tax you pay per dollar, not the total you pay

if I got to the store and buy more stuff then you, doesn't mean I was taxed more and should get a lower taxes then you


I am fine with lettign people invest, as long as your fine with the government guarnteeing at least so much, but if your right, that gaurentee would never be needed

 

raising the cap would make it last, we should have done it a decade ago

 

You're calling for a radical restructuring of the program. All I'm calling for is a simple raise in the FICA rate.

 

Probably not since more higher income folks aren't wage earners. Do some research on how many times limit has been raised and/or percentage hiked - it's the definition of kicking the can do the road. Also the current $160,000 limit equates to the 93% percentile so it's hardly a target rich environment.

 

huh/

again, huh?

Yeah, understand my suggest was a 20,000 ft view. There is a lot to work out before my suggestion could be implemented. Phasing it in could be a slow and humongous process, for instance. What investments would be allowed is also a question. And much more . . .

 

just adding a 2% bend point and it would save Social security and raising the cap, be worth it

 

all income should be taxed as income

 

if I buy $1000 worth of goods and the state has a 10% sales tax and you only spend $10

I pay more in taxes, but I spent more dollars.... same with those that earn more dollars, especially non-labored income

 

And . . .?