Title: Key Social Security Changes Gaining Bipartisan Backing to Avert Benefit Reductions
Title: Key Social Security Changes Gaining Bipartisan Backing to Avert Benefit Reductions
Social Security's financial predicament is screaming for attention. For nearly two decades, expenditures from benefit payouts have outpaced income from tax contributions. Since 2021, the program has been operating at a deficit, a trend the trustees forecast to continue perpetually absent Congressional intervention.
The looming catastrophe? The anticipated long-term funding shortfall surpasses an astonishing $22 trillion by 2098. By 2035, the trust funds that underpin Social Security benefits might be bankrupt, leaving taxes to cover merely 83% of scheduled payouts, potentially leading to a 17% reduction in benefits within a decade.
Political leaders have yet to bridge their differences to furnish a solution. Yet, a survey conducted by the University of Maryland's Program for Public Consultation (PPC) hints at a bipartisan remedy. Delve deeper to discover four fixes that could ameliorate the funding crisis without intimidating across-the-board benefit decreases.
1. Extend the Social Security payroll tax to income surpassing $400,000
Primarily, Social Security is funded by a dedicated payroll tax. Employees and employers contribute 6.2% of wages till the maximum taxable earnings limit. In 2024, the taxable ceiling is $168,600, but it usually escalates annually to mirror changes in the average salary. Earnings beyond the limit are exempt from Social Security taxation.
Applying the payroll tax to income beyond $400,000 could slash the long-term funding shortfall by a staggering 60%. Surprisingly, the majority of American voters endorse this change, with 89% of Democrats and 87% of Republicans in agreement, according to the University of Maryland's PPC.
2. Gradually escalate the Social Security payroll tax rate to 6.5% over six years
Presently, the Social Security payroll tax rate is 6.2%. Employees and employers collectively pay 12.4% of wages. Progressively ratcheting the tax rate to 6.5% over six years could decrease the long-term funding shortfall by 15%. Unsurprisingly, most American voters back this proposal, with 87% of Democrats and 87% of Republicans agreeing, according to the University of Maryland's PPC.
3. Gradually elevate the full retirement age (FRA) to 68 by 2033
Workers can claim retirement benefits as early as 62. However, they will not obtain their full payout, also known as the primary insurance amount (PIA), unless they claim Social Security at full retirement age (FRA). Currently, FRA is age 67 for workers born in 1960 or later. Those claiming Social Security before FRA receive a reduced benefit, meaning they get less than 100% of their PIA.
Gradually increasing FRA to age 68 by 2033 could reduce the long-term funding shortfall by 15%. Predominantly, American voters support this proposition, with 88% of Democrats and 91% of Republicans favoring it, according to the University of Maryland's PPC.
4. Adjust benefits for earners in the top 20% income bracket
Social Security benefits are determined by a formula involving two bend points (first and second). Specifically, a worker's PIA totals 90% of income below the first bend point, 32% of income between the first and second bend points, and 15% of income beyond the second bend point.
Changing these percentages to 90%, 32%, and 5% for the top 20% of earners could lessen the long-term funding shortfall by 11%. This proposal enjoys widespread approval among American voters, with 93% of Democrats and 92% of Republicans in favor, according to the University of Maryland's PPC.
Despite the consensus among voters, implementing these reforms requires robust political will. Negotiations between political leaders could potentially result in a compromise, ensuring the sustainability of Social Security's financial future.
Addressing the retirement funds' financial predicament requires smart fiscal decisions, with options such as extending the payroll tax to income surpassing $400,000, incrementally increasing the tax rate, adjusting the full retirement age, or altering benefit calculations for higher earners. Each strategy could significantly impact the long-term solvency of Social Security without triggering detrimental reductions in benefits.