Social Security serves as a critical income source for millions of retired seniors. And while those benefits aren’t in danger of going away completely, benefit cuts are on the table.
The reason? In the coming years, Social Security expects to spend more on scheduled benefits than it collects in revenue. That’s because baby boomers will be leaving the workforce in droves. Once that happens, the amount of revenue derived from payroll taxes will decline. And since those taxes are Social Security’s main funding source, the program will have to operate at a deficit.
Now it’s worth noting that Social Security does have trust funds it can tap once its revenue declines. But once those funds are depleted, benefit cuts will be on the table. And recent projections indicate that the Social Security trust funds will run out of money by 2035.
Of course, a reduction in Social Security benefits could have catastrophic consequences for current and future recipients. And so lawmakers are invested in preventing that from happening.
To that end, several different proposals have been introduced. But there’s one in particular that the public seems to support.
A good way to increase revenue for Social Security
While Social Security’s main revenue source is payroll taxes, not all earnings are subject to those taxes. Rather, there’s a wage cap that’s put into place every year that dictates how much earnings workers will be taxed on.
This year, the wage cap sits at $147,000. And it commonly rises each year due to inflation and wage growth.
Lawmakers have previously proposed raising the wage cap to pump more money into Social Security. And in a recent survey by the University of Maryland’s Program for Public Consultation, the overwhelming majority of both Democratic and Republican respondents agreed that raising the wage cap for wages over $400,000 (a proposal introduced by President Biden) is a good option for preventing benefit cuts.
Furthermore, the majority of respondents agreed that raising the payroll tax rate is another good solution to Social Security’s impending financial shortfall. Right now, employees pay a 6.2% Social Security tax rate on their wages, with employers matching that sum. Most respondents in the aforementioned survey are in favor of raising that percentage to 6.5%.
Beneficiaries shouldn’t lose hope
The idea of Social Security cuts can be scary for both current and future recipients. But the good news is that there are solutions that can be implemented to prevent that unwanted scenario. And the fact that payroll tax adjustments seem to have bipartisan support is a very positive thing — even if, undoubtedly, there will be pushback from some high earners.
Of course, raising payroll taxes isn’t the only step lawmakers can take to shore up Social Security’s finances. But lawmakers are inclined to keep constituents happy by preventing benefit cuts in the not-so-distant future, and this approach has broad public support.
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