Last week, the Social Security Administration (SSA) released the 2020 Social Security Trustees’ report, which details the program’s financial outlook over the past year and its future prospects.
For the last twenty years, these prospects have been declining. An increasing number of people in the “baby boomer” generation exit the workforce and begin to claim their Social Security benefits. Consequently, the agency the agency's payments to Social Security beneficiaries have now begun to outstrip revenues from collecting taxes, draining the agency’s trust fund. Prior to the pandemic, the money was slated to run out in 2035, but the report moves the doomsday clock forward a year, to 2034. This difference is largely on account of an increasing number of elderly Americans retiring before the Social Security Administration’s designated “full retirement age”—claiming benefits earlier in exchange for a slight monthly penalty, and incidentally increasing the SSA’s liabilities, even as the economic downturn has sharply affected its tax revenue.
Thirteen years is still a long time, and there is universal consensus on Capitol Hill that Social Security should be saved, probably because of its extreme popularity with the American public. The program is currently losing money, but solutions that would restore the balance of payments exist and could be implemented quickly in Congress if the political will to do so existed. Moreover, the more quickly these solutions are passed, the lower the overall price will be.
The Social Security Trustees’ report announced that the shortfall in Social Security payments would be equal to 3.54 percent of taxable payroll. Therefore, a 3.54 percent payroll tax increase would cover the program for the foreseeable future—at least until 2070, per the report.
At the moment, Social Security is taxed at 12.4 percent of earnings, divided evenly between employers and employees. Adding 3.54 percent would bring the total tax rate up to roughly sixteen percent, or around eight percent for an average worker. This is bearable, but not ideal, and because across-the-board tax increases are broadly unpopular, legislators have searched for other ways to fund the shortfall. One interesting alternative would be to raise or eliminate the wage cap, which states that any income above $142,800 is not subject to Social Security taxes. This step has already been proposed in Congress, though as yet it seems unlikely to pass.
Trevor Filseth is a current and foreign affairs writer for the National Interest.