Social Security program needs reform now
Congress continues to ignore the fact that Social Security's trust fund is expected to run out of money in 2035, which would result in a 20% cut in benefits.
When the Social Security and Medicare Trustees released their annual report for 2022 on June 2, it showed that the date for the depletion of the combined Old Age, Survivor and Disability trust fund had been moved back one year, to 2035.
Hold the champagne corks. This isn’t good news. Rather, it merely adds another agonizing year to a slow-moving train wreck.
“Social Security’s financial shortfall has been well-known for years and now it is staring us in the face just over a decade away,” said Shai Akaba, economic policy director at the Bipartisan Policy Center. “This year’s report shows yet again that we are well past the time for talking points and partisan entrenchment.”
Social Security is a critically important source of income for more than 65 million American retirees. And for the 180 million U.S. workers who contribute to FICA payroll taxes that fund Social Security benefits, it is the largest tax that most of them pay.
The Social Security trust funds have been helping to pay benefits since 2010, when payroll taxes alone were no longer sufficient. First, the system tapped the interest earned on trust fund reserves and last year, Social Security began dipping into the trust fund principal to help pay benefits. It will continue to do so until the trust funds are depleted in 13 years. But lawmakers have done nothing beyond introducing bills that have gone nowhere.
If Congress continues to do nothing before Social Security trust funds run dry in 2035, benefits will have to be cut 20% across the board for both new and existing beneficiaries. The Social Security Act doesn’t allow the system to pay out money it doesn’t have.
Now, I don’t expect that to happen. I don’t think lawmakers want to alienate more than 65 million older voters. And I understand that Congress has been busy with other matters, ranging from the Covid pandemic and the Russian invasion of Ukraine to gun violence, rampant inflation and the investigation of the Jan. 6, 2021, attack on the Capitol.
Social Security reform must be addressed — the sooner the better — to preserve this essential retirement income program for current and future retirees and allow Americans to adjust to any future changes. But such a difficult task requires bipartisan collaboration. And there’s the rub.
The last time Social Security faced a funding crisis in 1983, Congress approved sweeping changes to put the system on solid financial footing, including gradually raising the full retirement age from 65 to 67, boosting payroll tax rates, cutting some benefits and taxing Social Security benefits for the first time. Then, as now, Democrats generally opposed benefit cuts and Republicans typically opposed tax increases, but somehow how they found common ground. The secret is to make sure all parties are equally unhappy.
Unfortunately, political will and bipartisanship are in short supply.
A week after the 2022 Social Security Trustees released their dire report, Sen. Bernie Sanders, I-Vt., an independent socialist who generally votes with Democrats, and Sen. Elizabeth Warren, D-Ma., introduced a bill to increase Social Security benefits by $2,400 per year and fully fund the program through 2096.
The legislation would raise the minimum benefit for low-income workers, extend benefits for children through age 22, create caregiver credits for those who take time out of the workforce to care for children or elderly family members, and change how inflation is calculated for annual cost-of-living adjustments.
To pay for the expanded benefits, the Democratic sponsors proposed applying the payroll tax to all earnings above $250,000. Currently, employees and employers each contribute 6.2% of wages up to $147,000 to fund Social Security benefits. Self-employed workers pay the full 12.4% rate. However, the taxes on the additional income wouldn’t be credited toward future benefits for higher-income retirees, according to the bill, breaking the traditional link between payroll contributions and earned benefits.
In addition, a separate 12.4% tax would be imposed on investment income for single filers with income above $200,000 and married couples with incomes above $250,000.
Late last year, Democrats reintroduced similar legislation, the Social Security 2100 Act: A Sacred Trust, that would expand benefits and increase taxes on higher-income Americans. That bill attracted about 200 Democratic co-sponsors and the support of 100 advocacy groups. Not surprisingly, the response from congressional Republicans was crickets. The same goes for the latest Sanders-Warren legislation.
“Sen. Sanders makes a wonderful plea, which many, many people agree with — he need for helping our seniors and providing better benefits for them.” Mitt Romney, R-Utah, said during a recent Senate Budget Committee hearing. “But recognize this bill has no chance whatsoever of receiving a single Republican vote in either house.”
In addition to finding ways to fund Social Security for the foreseeable future, Congress needs to consider how to adapt Social Security rules, developed in the 1930s era of single-earner households, to a 21st century workforce of dual-income couples, gig workers, retirees who want to work without sacrificing Social Security benefits, and changing demographics that have reduced the ratio of tax-paying workers to benefit-receiving retirees.
As Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said so well after the latest trustees’ report was released: “Policymakers need to get their heads out of the sand and stop pretending these vital programs’ funding issues will fix themselves.”
Amen!
(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)
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