Lawmakers Are Desperate to Save Social Security, but …

As we get closer to 2035 +- Congress will eventually take action to avoid cutting Social Security benefits. Under its theme of “fair share” the political left will look to simply have higher income workers pay more by raising the taxable wage base. That mostly takes more from upper middle-class employees, not the super rich who typically have modest or zero salary income.

If the taxable base is increased, is it fair if that is not accompanied by higher benefits at retirement by taking all taxed earnings into account as is the case today? Raising the wage base even with a higher benefit provides some slight improvement in the Trust status because the benefit calculation is skewed to lower income workers.

Raising those taxes with no increased benefits provides significant benefit to the Trust, but still does not make Social Security fully sustainable.

Sometimes fair is in the eye of the beholder. Let’s say a family income is $250,000 split between spouses. If the cap is eliminated this couple sees no change in taxes paid. But if that same income is earned by one family member, taxes go up approaching double. If there is no accompanying increase in benefits, this family is even worse off.

Social Security is in trouble. In April, the program’s Trustees reported that Social Security’s trust funds could run out of money by 2035. Once that happens, the program may have no choice but to cut benefits to compensate for a lack of revenue. The bulk of Social Security’s revenue comes from payroll taxes — the ones everyone has to pay on earnings, up to a certain point. In the coming years, Social Security’s primary revenue stream will shrink as more and more baby boomers end their careers and not enough people enter the workforce to replace them.

As such, the program will owe more money in benefits than it can pay. It does have its trust funds to bridge that shortfall, but only for so long, and once those funds run dry, substantial benefit cuts may be on the table. Of course, cutting benefits would be catastrophic to the many seniors who already rely on Social Security for the bulk of their income, and it could also be similarly harmful to future recipients who plan to do the same.

As such, lawmakers are invested in a solution to prevent benefit cuts from happening, and increasing Social Security’s primary revenue source — payroll taxes — has been a popular suggestion. But it’s also a solution that’s not nearly as feasible as it may seem.

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Source: Lawmakers Are Desperate to Save Social Security, but This Solution Is Unlikely to Work | Nasdaq

5 comments

  1. Technically that might be true, but ponzi schemes collapse when there are not enough new people buying in to pay money owed to the original “investors”. When the “first in investors” cash out that is when all the money is lost or the money is embezzled by the operator of the scheme before anybody gets the promised payout (benefits).

    In the case of social security, the payout (benefits) are dependent on current workers paying for the retired workers. In 1935, the US birth rate was 18.7 births per 1000. Today the birth rate is 11.9 per 1000. The maths says that fewer people are being born who will grow and work that will be able to pay the benefits of the older workers. If that is not a pyramid scheme, I don’t know what is. It is no longer insurance since it is not longer based on the fund’s income and earnings.

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    1. DG – You are way off base, comparing SS to a Ponzi scheme.

      The infant mortality rate in the United States showed a consistently downward trend between 1935 and 2000, with the rate declining from 55.7 per 1,000 live births in 1935 to 6.9 in 2000, at an impressive pace of 3.1% per year. Fewer people being born in the US has nothing to do with the ability of the government to pay benefits to retirees. What about foreign workers? Wages paid to nonresident aliens employed within the United States by an American or foreign employer, in general, are subject to Social Security/Medicare taxes for services performed by them within the United States, with certain exceptions based on their nonimmigrant status.
      As long as the taxes collected and interest paid on the bonds in the SS Trust Fund are enough to continue to pay benefits there is no problem with the current program.
      Adjustments to tax rate, COLA, income cap can easily fix the 20 to 25 percent shortfall coming in 2035. By 2055 most of the Boomers will be dead, so we need to fix SS so it continues to provide benefits for generations to come.

      Millennials overtake Baby Boomers as America’s largest generation

      Millennials have surpassed Baby Boomers as the nation’s largest living adult generation, according to population estimates from the U.S. Census Bureau. As of July 1, 2019 (the latest date for which population estimates are available), Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million. Generation X (ages 39 to 54) numbered 65.2 million and is projected to pass the Boomers in population by 2028.

      The Millennial generation continues to grow as young immigrants expand its ranks. Boomers – whose generation was defined by the boom in U.S. births following World War II – are aging and their numbers shrinking in size The generations definedas the number of deaths among them exceeds the number of older immigrants arriving in the country.

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  2. I know many people will think my opinion is harsh..But, Since no one currently getting a SS benefit paid for the total benefit that they will receive. We should all just get a 25% cut in benefits in 2035 and be thankful that we are still getting something.

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    1. I am not in favor of a cut, but I like your idea. Every year on your Social Security statement, they guess when the funds will run out. They should just pick a date and say from this point on, your benefit will be cut 25% to $x.xx on January 1, 2035. Period, end of story. The sooner the better.

      What the SSA will do is announce on January 2, 2035, that your benefit has been cut 25% as of January 1st because the trust fund no longer has the money giving you no chance to plan or do something different. Fix it or do it now so people can plan or work a year longer, save more, or something else.

      In the meantime, the politicians will waste those all years promising (if you vote for me) to raise the benefit by 25% but never will come to an agreement. Senior citizen advocates will continue to claim that the government stole the money, the system is not broke, etc., never telling the truth that Social Security is nothing but a big ponzi scheme. Young workers at the bottom are paying the benefits of the old retired workers at the top.

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      1. Social Security is NOT a Ponzi scheme. Because when the younger workers get old enough to retire, there will be younger workers and their employers paying for current benefits. In a Ponzi scheme you loose everything, that is not how Social Security works. SS provides disability, survivor and spousal benefits so it cannot be considered a Ponzi scheme..

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