The Social Security program faces a critical funding shortfall, with trust funds projected to run dry by 2035. If no action is taken, beneficiaries could see a reduction of at least 17% in scheduled payments. While Congress has yet to take significant steps to address the issue, bipartisan solutions supported by voters offer a glimmer of hope.
Urgent Need for Action
Since 2021, Social Security has operated at a deficit, drawing from trust funds to cover the gap. Without intervention, insolvency will leave the program unable to fully meet its obligations, causing severe financial strain for millions of retirees.
However, a survey conducted by the University of Maryland’s Program for Public Consultation (PPC) reveals widespread support for several measures that could help resolve the shortfall. Let’s look into these proposals.
1. Tax Income Above $400,000
Currently, Social Security payroll taxes are applied only to wages up to an annual cap—$168,600 in 2024, increasing to $172,000 in 2025. Earnings above this threshold are not taxed, creating an imbalance where lower-income workers pay a higher percentage of their total earnings.
Proposal: Apply Social Security payroll taxes to earnings over $400,000.
- Impact: Addresses 60% of the funding shortfall.
- Support: Backed by 89% of Democrats and 87% of Republicans, this measure could make contributions fairer while significantly improving the program’s financial health.
2. Payroll Tax Rate
The Social Security payroll tax rate is currently 6.2% for both employees and employers, totaling 12.4%.
Proposal: Gradually increase the payroll tax rate to 6.5% over six years.
- Impact: Covers 15% of the funding gap.
- Support: With 87% bipartisan support, this modest increase would have minimal impact on individuals while contributing substantially to the program’s stability.
3. Full Retirement Age to 68
Workers can begin receiving Social Security benefits at age 62, but the full retirement age (FRA) for those born in 1960 or later is 67.
Proposal: Increase the FRA to 68 by 2033.
- Impact: Addresses 15% of the shortfall.
- Support: Supported by 88% of Democrats and 91% of Republicans, this change reflects Americans’ longer life expectancy and could help balance the system.
4. Reduce Benefits
Social Security benefits are calculated based on a worker’s earnings history, with a formula that applies progressively smaller percentages to higher earnings.
Proposal: Reduce the replacement rate for the top 20% of earners from 15% to 5%.
- Impact: Addresses 11% of the funding gap.
- Support: This measure garners support from 93% of Democrats and 92% of Republicans, making it one of the most universally accepted solutions.
Path Forward
While none of these proposals alone would eliminate the Social Security shortfall, implementing a combination of them could significantly extend the program’s solvency. The bipartisan support these measures enjoy among voters indicates that there may be room for agreement in Congress.
The looming Social Security shortfall demands prompt and decisive action. Solutions such as taxing high earners, gradually raising payroll tax rates and the retirement age, and reducing benefits for the wealthiest recipients offer practical ways to address the issue. With widespread voter support, these proposals represent a starting point for preserving the program’s future.
FAQs
When will Social Security funds run out?
Trust funds are projected to be insolvent by 2035.
What happens if the funds run out?
Scheduled benefits could be reduced by at least 17%.
What is the proposal for taxing high earners?
Tax income above $400,000 to cover 60% of the shortfall.
How would raising the retirement age help?
Increasing the age to 68 by 2033 would address 15% of the gap.
What is the current Social Security payroll tax rate?
It is 6.2% for employees and employers, totaling 12.4%.