A program as important and popular as Social Security is bound to find its way into the news from time to time. But that doesn’t mean everything you read about it is accurate.
You may have read in various places that Social Security is on the brink of bankruptcy, and that the program is at risk of disappearing completely, leaving retirees and working Americans alike in the lurch. But thankfully, that’s a huge exaggeration.
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It’s true that Social Security is facing financial difficulties. In the coming years, it expects a decline in revenue as baby boomers retire and stop paying into the system, all the while claiming the benefits they’ve earned.
Because of this, Social Security will need to tap its trust funds to keep up with scheduled payments. Once the program’s trust funds are emptied, Social Security may have to reduce benefits across the board.
That’s a far better scenario than the program going away completely. But it’s clearly not optimal.
The good news is that lawmakers can try to take steps to prevent Social Security cuts. But they’ll need to choose their solution carefully.
Options for pumping more money into Social Security
Lawmakers have a number of avenues they can explore to boost revenue for Social Security. These include:
- Lifting or eliminating the Social Security wage cap
- Raising the rate of Social Security taxes
- Pushing back full retirement age
- Means-testing seniors and reducing benefits for the wealthy
The goal, of course, will be to find the most effective solution that causes the least amount of disruption. But that itself is apt to be challenging.
First, let’s talk about raising or doing away with the wage cap. Higher earners commonly get out of paying Social Security taxes on a chunk of their wages each year. Getting rid of that rule and making all income taxable for Social Security purposes could easily result in more revenue for the program.
But Social Security pays a maximum monthly benefit based on the fact that there’s a wage cap. It would be tricky to raise one without the other.
Increasing the rate of Social Security tax is another option lawmakers could look at. But the downside is clear — Americans would be faced with an even more substantial tax burden.
Pushing back full retirement age, meanwhile, could effectively force more Americans into longer careers. Not only may that not be desirable, but it may not even be feasible given the potential for health and mobility issues to arise with age. Plus, this is a change lawmakers would need to start phasing in almost immediately to give workers a chance to adjust.
Means-testing seniors and reducing or taking away benefits for higher earners who don’t need Social Security might be the least painful solution on a broad level, at least in theory. The problem is that it changes the entire nature of Social Security, turning it into more of a welfare program than it’s supposed to be.
Lawmakers have their work cut out for them
Clearly, something should be done to prevent Social Security cuts. And lawmakers have options for boosting the program’s finances. But they’ll need to think through these and other solutions carefully given that the stakes are so high, and given that each potential Social Security fix could also introduce a world of problems.
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