Social Security Fix Needs Political Courage
Social Security beneficiaries will receive a cost of living adjustment of 2.5 percent (COLA) for January. This is not enough to keep seniors up to date with the rising costs, but is enough to put a strain on the trusts that fund the program. The Congressional Budget Office (CBO) estimates that the Social Security Old Age and Survivors Insurance Trust Fund (OASI Trust Fund) will run out of funds in 2034
. This would result in a 23 percent cut to benefits. The Disability Insurance (DI) Trust, which pays benefits to disabled workers and their families, is projected to become insolvent in 2064.
Why is Social Security Running Out of Money
Spending more than you bring in is not a sustainable financial plan. Social security does exactly that. The program pays more in benefits to 68 million beneficiaries that it collects in taxes and interests. The OSAI and DI Trusts will generate revenue of just over $1.381 trillion this year. The paid benefits for both programs will be a little more than $1.482 trillion. That is a negative difference of more than $100 billion.
There are several reasons for the shortfall in Social Security.
The population is aging. The population is aging and people are living longer. The number of Americans 65 and older will increase from about 61 million in 2023 to about 77 million by 2035.
In 1960, there were 5.1 workers paying into Social Security for every beneficiary. The ratio is decreasing. In 2023, there will be 2.7 workers for every beneficiary. This figure is expected drop to 2.4 employees per beneficiary by 2023. In addition,
high income earners don’t pay Social Security tax on earnings over $168,600. Election Impact on Social SecurityPledging to protect Social Security is always a staple of any presidential campaign and this year is no exception. The majority of candidates pledge to protect Social Security, but they don’t provide any specifics about how they will do it. This year is no different.
Trump’s Impact
Former President Donald Trump has proposed tariffs against nearly every country importing goods into the United States. He says that the revenue from his plan will cover all government expenses. However, most economists disagree saying that tariffs would increase the cost of goods for American consumers
.
Last week the Committee for a Responsible Federal Budget (CRFB) released an
analysis of the impact of Trump’s proposals on Social Security
. The results were not optimistic.The CRFB determined that Trump’s proposals would reduce Social Security’s funding by $2.3 trillion by 2035. That would mean the trust fund would become insolvent in 2031 – three years earlier than current projections.For retirees, Trump’s policy would result in a 33 percent cut in benefits instead of the 23 percent forecast previously.
Specific Trump proposals cited as damaging Social Security’s financial health included:Ending taxation on Social Security benefits. This would end a source of revenue for the program.Ending all taxes on overtime and tips. Some of those taxes help fund Social Security.
Tariffs. The increased cost of consumer goods could reinvigorate inflation or reduce payrolls, resulting in lost tax revenue.
Immigrant deportation. Trump’s campaign has always emphasized the need to restrict immigration. The CRFB claims that deportation will reduce the number immigrants who pay into Social Security trust funds.
The CRFB analysis is the latest to sound the alarm about Trump’s plans.
- However, it is not the only one.
- The Tax Foundation determined that the former president’s plans to eliminate Social Security taxes
- cut revenue to the program by almost $1.6 trillion from 2025 to 2034
- .
Harris’s Impact
Both as a candidate and as an officeholder, Vice President Kamala Harris voiced support for Social Security. Her record demonstrates that she is in favor of expanding the program, and utilizing higher incomes for paying the costs. She supports increasing the cap of $168,600 on income taxed to Social Security. As a Senator, Harris cosponsored the Social Security Expansion Act that proposed changing the COLA Formula to better reflect the impact inflation has on seniors. This change has been supported by many senior advocacy groups for years.
“This year represents another lost opportunity to grant seniors the financial relief they deserve by changing the COLA calculation,” Senior Citizens League Director Shannon Benton said of this year’s COLA announcement.The Social Security Expansion Act also allowed for more aggressive payroll tax collection to help fund the expansion.As vice president, Harris supported President Joe Biden’s proposal to raise more revenue from high-income individuals.
Ways to Fix Social Security
Conventional wisdom holds that there are only a few ways to make Social Security solvent for the long haul. You can either raise taxes, cut benefits, or do both. However, few members of Congress are willing to risk their careers by doing any of those things.
President Ronald Reagan authored a reform plan that cut benefits and implemented a tax on Social Security income for the first time. The age at which full benefits are paid was gradually increased from 65 to 67. This pushed the problem down the road, and we’re now where we are. This idea was to invest some Social Security funds into private investments, such as the stock exchange. The Social Security Administration or individuals could invest in their own retirement accounts. This idea has a problem: market risk. Another option is to implement an affluence check. This would mean that retirees who earn more than a certain amount, say $50,000 per year, would receive less in benefits. The program would no longer be a universal benefit, but instead one that targets those in greatest need. Another idea, which may be most appealing to Congress, is to add the Social Security deficit onto the national debt. The trusts would borrow money from the government, or the government would give it to them. That would effectively eliminate the Social Security problem, but it would add to the country’s debt problem.
In the words of the late Senator Evertt Dirksen, “A billion here, a billion there and pretty soon you’re talking about real money.”
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