Every year it’s the same sad story: Social Security’s Trust Fund is running out of money. Spoiler alert: It doesn’t have to be that way if Congress stops kicking the can down the road.
What’s missing is the raft of remedies Congress can take now to avoid problems in the future. The Center for Retirement Research at Boston College (CRRC) did a recent analysis of Social Security’s looming shortfall and came up with some common-sense insights.
“The fact that in 2033 Social Security would be able to pay only 77% of scheduled benefits should focus our collective minds,” CRRC notes. “Thinking of ways to restore balance to the program is not hard; the Social Security Actuaries publish an annual booklet with more than a hundred possible benefits cuts or revenue increases. Indeed, a lot can be said for maintaining a self-financed program.”
Policymakers need to rethink how Social Security is funded. Does it make sense to cap the percentage of earnings subject to the payroll tax? That means lower- and middle-income earners are shouldering most of the burden for funding the system. Higher-income workers need to pay their fair share.
There’s more work needed on balancing payments. Some workers will gain far more benefits than they paid in taxes.
“The impending depletion of trust fund assets is the ideal time to rethink the program’s financing structure and to consider whether a general-revenue component might be appropriate,” the CRRC report adds.
“The rationale for general revenue is that Social Security costs are high, not because the program is particularly generous, but because the trust fund is missing. If policymakers choose to maintain Social Security benefits at current-law levels, little rationale exists for placing the entire burden of the Missing Trust Fund on today’s workers through higher payroll taxes; that component could be financed more equitably through the income tax.”
The bottom line is finding a fairer way to put more money in the Social Security trust fund. “One could argue that the legacy burden should be borne by the general population in proportion to the ability to pay – that is, this part of the Social Security financing problem could be transferred to general revenues.”
Sure, wealthier workers have the ability to pay more. But policymakers also should consider expanding benefits to cover more of pre-retirement income for those who aren’t able to save on their own. Raising payroll taxes should be on the table to ensure the program survives.
“This is not a free lunch – income tax rates would have to increase,” the CRRC study concludes. “But this shift would represent a more equitable sharing of the burden….Thus, the burden would be distributed more broadly, but the sense that workers pay for and are entitled to their benefits would remain.”
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