Millions of Americans are worried about Social Security – whether they will get the full retirement pay they were promised in the coming years. And many are worried about whether they will get the full retirement pay they were promised in the coming years. young people I believe it is wrong that Social Security will not be available to them by the time they are ready to retire.
The issue is considered so vexing in Washington that most politicians avoid it. The latest annual Social Security trust fund Report May said benefits would be cut by about 20 per cent starting in 2033 if action was not taken.
Yet when you stop and really look at the problem, it turns out that what’s needed to fix Social Security isn’t a big deal.
This is not a bold claim. It is based on solid data, which has been calculated Alicia MunnellA Boston College economics professor who is one of the nation’s leading experts on Social Security.
Professor Munnell explained in a telephone conversation that a 3.5 percentage point increase in the 12.4 percent Social Security payroll tax — half of which would be borne by employers and half by employees — is enough to continue full Social Security benefits into the 2030s and beyond.
He also stressed that even if Congress does nothing to fix Social Security, you’ll still get most of the benefits you’re promised. That’s because most of the money that finances Social Security checks comes from payroll taxes paid regularly by working people. Income from the system’s trust fund, which is declining, makes up for it. Taxes would put enough money into the system to pay about 80 percent of benefits even if the trust fund fell to zero. But Professor Munnell doesn’t expect that to happen.
Why a solution is finally coming
Cutting benefits for those who are already retired — or about to be — is unlikely, because older people vote in large numbers. Withholding money they have been promised would be political ammunition, as President Ronald Reagan found out in the 1980s when his administration supported such a move but later backed away swiftly.
At some point, the political class will find a way to avoid that disaster. Millions of people are already feeling distress and confusion about retirement. It would be much better for everyone if the repair work happened sooner rather than later. Because of the shortcomings in the rest of the nation’s retirement system, preserving Social Security benefits — not reducing them — is critical to the well-being of current and future retirees, Professor Munnell said.
Still, a tax increase for Social Security will never be a popular move. It’s not even being openly discussed by presidential candidates, though both the Biden and Trump campaigns say they are committed to keeping Social Security intact.
In an election year, candidates are in no rush to solve a problem that won’t hurt people economically for the next decade and that would involve a tax increase, even a small one.
“That’s going to be hard to do because you’re going to have to increase people’s taxes before they see something concrete,” Professor Munnell said. “You’re going to have to increase their taxes so that they can get what they already think they should get. And so I worry that, politically, in this country, we have a tendency to stare into the abyss and only act when we get there. That’s what we did in 1983,” when Social Security last got a major overhaul.
Numbers, big and small
Professor Munnell, 81, has been conducting serious research on Social Security since the 1960s. As Assistant Secretary of the Treasury for Policy Issues from 1993 to 1995, she officially dealt with Social Security. She has also led the Retirement Research Center at Boston College since its founding 26 years ago, and has produced its own candid annual report. ReportWe’ll discuss the status of the Social Security trust fund immediately after the Social Security trustee releases its funds.
Although she delves into the complexities of Social Security, she takes a common-sense approach and presents easy-to-understand answers.
How big a problem is the gap in Social Security funding? It might seem big or small, depending on how you look at the numbers.
If you want to scare people, he said, point to the total projected size of the gap between costs and incomes over the next 75 years: $22.6 trillion. That’s huge!
But the U.S. economy is huge and growing. As a fraction of the entire economy over the next 75 years, the gap in Social Security funding is tiny: just 1.2 percent of GDP.
The key factor you should keep an eye on is the payroll tax, since it provides the bulk of Social Security’s funding. As a fraction of the total amount collected through the payroll tax, the funding gap is about 3.5 percent.
That’s why Professor Munnell has recommended an additional 3.5 per cent payroll tax, which would be paid in addition to the tax. 6.2 percent For which both the employer and the employee are now responsible. (Self-employed people pay the entire 12.4 percent tax themselves.)
He said just increase taxes by this much, without changing anything else, and most of the problem would go away.
The roots of the problem
People of my generation, the Baby Boomers, are retiring in large numbers. Also, because of a long-term decline in fertility rates, comparatively fewer people of working age are paying taxes to keep the system fully funded. Immigration has helped strengthen the workforce, and more immigration would solve the problem, but given American politics, it would not be wise to count on it.
These demographic issues were well understood during the Reagan administration in 1983. At that time a bipartisan commission, led by future Federal Reserve Chairman Alan Greenspan, put forward the basics of a legislative package that, for a time, put the system on a firmer financial footing.
Congress and the president eventually agreed on some major changes. These included raising payroll taxes to their current rate, cutting benefits in subtle ways, and building a surplus in the trust fund, the size of which has fluctuated since Social Security’s inception. 1935The idea was that when the baby boom generation retired and Social Security took out more money than came in each year, the trust fund would make up the difference.
In Congressional testimony Last year, Stephen C. Goss, the Social Security Administration’s chief actuary, said that in 1983 officials expected the trust fund would last until the mid-2050s. “It was known that further action would be needed by that time,” he said.
Instead, the day of reckoning is arriving nearly 20 years early.
Mr Gaus said two things went wrong. The first was the deep recession of 2007-09, which distorted long-term projections.
Second and most important, income inequality in the United States has grown far faster than economists expected. Mr. Gaus said the incomes of the top 6 percent have “grown far faster than the overall average.” In 1983, the Social Security payroll tax was imposed on 90 percent of the nation’s wage income. Now, the taxable wage limit is 10 … $168,600He said only 82.5 percent of the country’s wage income is taxable for social security. The limit should be increased Over $300,000 raised To take us back to 90 percent of coverage of the Reagan administration.
Raising the threshold in this way — taxing wealthy people more and everyone else less — would reduce the 3.5-point tax increase needed to fully fund Social Security to 2.45 points, the Social Security system estimated.
multiple choices
Professor Munnell’s solution is simple and straightforward. She wants to add an automatic circuit breaker – which could temporarily stop cost-of-living adjustments or alter taxes or benefits – to prevent the system’s finances from collapsing again.
His proposals make sense to me, although I would take into account the increase in income inequality, raise the wage ceiling and reduce the general payroll tax increase. This is not a revolutionary idea. It would be a return to the bipartisan spirit of Social Security reform, which was supported by President Reagan, a well-known conservative Republican, and Speaker Thomas P. (Tip) O’Neill Jr., a Massachusetts Democrat.
There are countless ways to fix this system, and once the effort begins in earnest, many methods will be discussed.
However, cutting benefits should be ruled out, Professor Munnell said. Only half of workers in the United States are covered by a new model of health insurance. Covered Even for those covered under workplace retirement plans, the overall picture of retirement preparation is not good. The financial services industry is more than willing to come forward with solutions, but always for a fee.
The reality is that Social Security is as important to most people today as it was 40 or 50 years ago.
The White House and Congress could wait until 2030, when benefit cuts are imminent and general anxiety about retirement will increase.
Yet there is no doubt that if Social Security were overhauled and benefits were guaranteed, millions of people would be better off, and that just happened.
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