The demise of Social Security is coming. In fact, it looks like it’s getting closer and closer every day. For almost eighty years retired workers have been collecting monthly Social Security checks. What started as a program to help low income individuals for a few years after they retired, has now become a main source of income for millions in retirement.
Payouts Larger Than Collections
For years, many economists and financial experts have been warning the government and anyone else who will listen that Social Security funds aren’t going to last forever. And the writing is on the wall. According to the latest annual Social Security Board of Trustees report, Social Security is on pace to shell out more in benefits than it collects this year.
The Deficit Is Expected to Keep Growing
The deficit is expected to be about $1.7 billion, which might not sound like much, but it’s expected to grow each year going forward, except in 2019. In fact, based on models, Social Security reserves are expected to drop by $700 billion by 2027. The same models predict the entire reserve of $2.9 trillion will be gone by 2034. On the plus side, the program is not expected to go bankrupt. The continuing money collected via the payroll tax will allow eligible beneficiaries to continue collecting benefits. But for how long? The current payout schedule is not going to last. That means the current benefits will need to be reduced by as much as 21 percent.
Just Raise the Payroll Tax Cap
So, is their any hope? Can it be fixed? The solution needs to come from Congress, which has several options. One of those is to raise taxes on the wealthy and force them to pay for Social Security. So how would that happen? The Government would just need to eliminate the $128,400 cap on payroll tax. Most Americans, 90 percent, wouldn’t be affected. The richest 10 percent would take a big hit. Many Americans like this idea, because the wealthy could likely afford to pay a little more in taxes, and they’re also less likely to need SS benefits when they retire.
Not as Easy as it Seems
So why doesn’t the government just go ahead with this plan? There are a few reasons.
1.First, simply taxing the wealthy because they can afford it isn’t fair. They would have to pay the bulk of the extra money to refill Social Security reserves, but they would not receive any additional money in benefits. That’s because there is a cap on the amount of benefits you can receive, not matter how much you make.
2. Second, currently, Republicans control both the House and the Senate. There is no way they are going to vote to raise taxes on the wealthy. Plus, Republicans think they have a better plan. They want to raise the full retirement age and force retirees to wait longer to receive their full benefit. As long as our country is run by a two-party system, don’t expect either side to budge.
3. Lastly, wealthy Americans play a huge role in the political process. By raising the payroll tax cap, politicians would likely suffer the wrath of these wealthy individuals who are also some of the largest political donors. More than likely, these wealthy taxpayers are doing everything in their power to prevent this change.
So there you have it. While it makes sense on paper, it’s very unlikely that the wealthy will be paying to fund Social Security any time soon. And in the meantime, the fate of the Social Security program hangs in the balance.