Social Security is headed for a shortfall in funds in the near future. According to the 2016 annual report from the Social Security Board of Trustees, Social Security will begin running deficits in 2020. Income from interest and reserve funds can cover the shortfalls until 2034, at which point only 75% to 80% of retiree benefits will be available for recipients.
The Republican and Democratic presidential candidates were asked for their solutions to the Social Security dilemma during the third debate. Neither one gave a meaningful answer to the question, agreeing only that benefits would not be cut. What a surprise!
However, it is fair to ask — could we average Americans come up with a better solution? A recent survey set out to answer that question by clearly defining the problem and presenting a series of solutions along with balanced pro and con arguments (vetted by both liberal and conservative sources).
So what is the essence of the problem with Social Security? It's a matter of simple logistics. The number of workers paying in is decreasing while the number of retirees drawing benefits is increasing, and Americans are exacerbating this discrepancy by living longer. Either income must be increased, or benefits must be cut.
The survey respondents came up with the following four actions to fix Social Security, all of which have been considered by economists and politicians over time.
1. Make More Income Subject to Tax – Currently, the maximum amount of annual personal income subject to Social Security taxes is $118,500. 88% of respondents supported raising that value to $215,000 or eliminating it entirely, significantly increasing the progressivity of Social Security (wealthier Americans would pay a higher percentage of their income while their benefits are subject to a lower cap).
2. Increase the Payroll Tax – The current payroll tax is 6.2%, and 76% of respondents were in favor of raising that tax to 6.6%. As the tax is independent of income level, a payroll tax increase has more of an effect on lower income recipients, and a far worse impact on the self-employed who must pay both the employer and employee components of the tax.
3. Reduce Benefits to High-Income Earners – Means testing to limit benefits for the top 25% of lifetime earners earned the support of 76% of survey respondents. While responses were broken down between Republicans and Democrats and geographical areas, there was no correlation to income of respondents. Perhaps it's just a coincidence that almost 25% of respondents do not support this idea...
4. Increase the Full Retirement Age – Currently the full retirement age (FRA) to receive full Social Security benefits is 66 for those born prior to 1955 (increasing by 2 months through 1959) and age 67 for those born in 1960 and beyond. 79% of respondents approved gradually raising the retirement age another year to 68. As with increasing the payroll tax, this action is independent of income.
If the four above steps were implemented with the earnings cap completely removed, the projected shortfall would be completely eliminated.
These may sound like partisan Democratic solutions, but the responses were truly bipartisan – none of the options was supported by less than 72% of Republicans or 78% of Democrats. Increasing the retirement age was the only option of the four preferred by Republicans over Democrats.
The main point of this survey may be that Americans seem willing to address the issue of Social Security and tackle the issue head-on when presented with facts and solutions in a rational manner. Taken at face value, Americans seem to be open to a compromise that both raises some taxes and cuts some benefits to keep Social Security solvent and balances the pain (although that pain is clearly tilted toward those with higher incomes).
Is it likely that Congress and President-Elect Trump will take meaningful action based on this survey? After an election year filled with mudslinging and venom, it seems unlikely — but we can always hope for the best.
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