“Social Security reform” is one of those soundbites you hear without change every election cycle. Politicians have been sounding the alarm for decades, saying the program — which helps retirees, people with disabilities and their families afloat — is quickly running out of money. So what exactly is the risk?
Social Security is a pay-as-you-go system, so taxes collected from workers today are spent on current beneficiaries. But because the labor force hasn’t grown as fast as baby boomers are retiring, more is being taken out of Social Security than ever. The federal government depends Trust Fund To fill the gap, but those reserves are expected to be completely depleted by 2035, Congressional Research Service.
That doesn’t mean the government won’t have any money left over. But if Congress doesn’t act before those reserves run out, the government will only be able to honor 83 percent of scheduled benefits, which means that most, if not all, Social Security recipients will see their family incomes drop. (By 2098, the government will only be able to cover 73 percent.)
That outcome would be disastrous for many. Since it was established in 1935, Social Security has been a highly successful welfare program, and each year, it helps more than 20 million people live above the poverty line. It has never paid scheduled benefits before. But if Congress doesn’t act, the number of Social Security beneficiaries who live below the poverty line will increase May increase by more than 50 percent By 2045, black and Hispanic households are disproportionately affected.
None of this is inevitable, and lawmakers will eventually have to do something to make up the shortfall. What is the question?
That’s what Democrats and Republicans have proposed
Congress has no choice but to raise revenue, cut programs, or some combination of the two. Democrats have called for tax increases and, in some cases, Extension of facilitiesWhile Republicans have a majority Advocate for cuts.
In recent years, however, the GOP has promised that it is Human benefits will not be cut. For years, Donald Trump, for example, has suggested His fellow Republicans Trying to gut Social Security (even though the program is also called disability insurance) is bad politics “a noise”) now on the campaign trail, He is committed Not to “cut a dime from Social Security” or raise the retirement age, as many Republicans have proposed in the past.
But Trump’s promises don’t add up to any real plans. he Cost reductions are proposed on social security in each of his annual budgets while in office. And despite his promise, he is Suggested that he open This is the time to cut Social Security.
Trump also recently proposed tax cuts on Social Security benefits. This may sound good because people will net more money when they receive their benefits. But the reality is more complex. D Poor families will see no change That’s because Social Security benefits are already tax-free for those earning under $32,000 under that plan, while the wealthiest recipients are more likely to see a tax cut.
For her part, Vice President Kamala Harris, like other Democrats, has pledged to preserve Social Security benefits. Committing to take the program forward And make sure it stays solvent. He promised to do so ready “Millionaires and billionaires pay their fair share in taxes.”
But Harris’ plan is light on details, and it’s not exactly clear how the federal government will be able to raise enough revenue.
What might social security reform actually look like?
There’s no way around it: Lawmakers will have to raise taxes on many families, including those who aren’t millionaires. At this point, anyone with any income Makes over $168,000 Social Security is not taxed. This means that high earners pay a smaller portion of their income to the Social Security Fund than low and middle income earners.
“People are shocked to learn that the rich don’t pay taxes above the cap,” said Monique Morrissey, a senior economist at the Economic Policy Institute.
To combat this, President Biden has tried to reintroduce the Social Security tax Income above $400,000. That odd formula just boiled down to politics: Biden has promised to raise taxes on any household making less than $400,000. But that creates what some experts call a donut hole — a pile of untaxed income between the cap and $400,000, and that’s in itself. Not enough to fill Expected budget deficit. But if Democrats are serious about raising revenue for Social Security, they should consider raising taxes on everyone. It may not be as unpopular as they fear.
“Democrats really have to lose that pledge” not to raise taxes on anyone making less than $400,000, Morrissey said. “People are happy to pay more in taxes when they see it’s benefiting them.”
Indeed, surveys show that The majority of Americans They support raising taxes to ensure they get Social Security benefits, and only 31 percent would choose to cut them.
A modest payroll tax increase for Social Security would have little impact on most families and greatly benefit the program. Furthermore, Congress should consider expanding the categories of income taxed for Social Security, including investment income.
Raising taxes, however, is not an easy task, especially when those taxes are targeted at the wealthy. And if Congress fails to raise enough revenue, it will have to start looking at cuts to benefits. “It’s perfectly reasonable to think about solving the problem with some mix of revenue increases as well as benefit cuts,” said Gopi Shah Goda, director of the Retirement Security Project at the Brookings Institution.
As a cost-saving measure, benefits should not be reduced across the board If Congress lifted the cap on taxable income, for example, it wouldn’t necessarily increase the maximum benefits that are paid to those who contribute the most to the system. And some of the additional revenue from the new tax could be targeted to extend benefits to those — such as surviving spouses or children — who rely most on Social Security to stay out of poverty.
Ultimately, a program like Social Security should ensure that none of its recipients fall into poverty, especially because those who are retired or disabled have limited sources of income. It’s definitely a program worth spending more money on – and A majority of Americans agree.
I want to hear from you
After the first issue of Our Money, many readers reached out to talk about the relationship between disability and poverty and how programs like Social Security fall short. For a future issue, I’ll look at the flaws in how we provide Supplemental Security Income — how hard it is to qualify, for example, or how the requirements make saving money impossible — and I’d love to hear about your experiences. If you have a story you’d like to share, please send me an email at abdallah.fayyad@vox.com.
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