Why there are no simple solutions to Social Security’s problems: One of the most popular leisure games in the nation’s capital is titled “How to Fix Social Security.” Over two-thirds of beneficiaries aged 65 and older derive at least 50 percent of their monthly income from Social Security. Social Security payments account for at least 90 percent of one-third of their income. And, as you likely know, it is running out of money.
Unless changes are made, Social Security cannot provide full benefits for approximately ten years. The reimbursements will be reduced by more than 20 percent, causing severe financial hardship for millions of people. It is impossible to allow that to occur.
Why do I refer to this activity as a parlor game?
Due to the complexity of the program and its finances, the current recommendations for restoring the financially unstable system equate to simple and unserious one-stop shopping.
As someone who has written for decades on Social Security, paid the maximum Social Security contribution for more than 35 years, and is now a Social Security beneficiary, I am aware that simple plans make for excellent politics, soundbites, and campaign speeches. However, this will not solve the issue.
Why? Because the only alternative to giving Social Security a printing press to create the funds it needs to pay promised benefits is for retirees like myself, our children, grandchildren, and future generations to make sacrifices, Social Security’s printing press is not an option.
Republicans and Democrats must collaborate, act like adults, and address the issue immediately in order to find a solution. Unfortunately, nothing of the sort is expected in the near future.
So allow me to attempt to explain what’s going on and why simple-sounding notions such as “Raise trillions by taxing every penny of income the filthy rich earn!” are problematic. Both and “Stop those slackers from taking early retirement!” are inadequate. — are not straightforward but rudimentary.
Raising the Cap Without Increasing Benefits Would Be Counterproductive
Social Security’s financial structure and formula for calculating benefits are extraordinarily complex. The program’s 12.4% tax, the highest income tax paid by the majority of employed individuals, is shared equally by employer and employee. However, the majority of system employees, including myself, believe that even though employers pay half of the 12.4%, the money would go to employees otherwise.
$160,200 per year is the quantity of earned income used to calculate benefits and collect Social Security taxes. Each year, these figures are adjusted for inflation.
One of the most popular liberal solutions to Social Security’s financial woes is to repeal the wage limit while denying those who earn more than the cap any payments above the current formula. This would result in a 12.4% increase in their tax burden without providing any benefit.
It would erode the political support of these powerful and affluent individuals for Social Security, and it might even encourage them to convert their taxable earned income into lower-taxed investment income. Increasing the limit is difficult, but essential.
According to Steve Goss, the chief actuary of Social Security, the primary reason the 1983 Social Security reforms have not had the desired effect is because the percentage of earned income subject to Social Security tax has decreased from 90% to 82.5%.
Why there are no simple solutions to Social Security’s problems: This is because the earned income (salaries, bonuses, etc.) of those with higher incomes has increased much more rapidly than that of those with lesser incomes.
What would bring Social Security coverage back to 90 percent of earned income? It turns out that the current utmost taxable amount must be tripled. That may seem excessive, but I cannot articulate why. It is another example of how Social Security can cause cognitive impairment.
Age of retirement increased
Raising the retirement age would be advantageous because individuals would work longer hours, contribute more to Social Security, and receive benefits for a shorter duration of time. It’s a solution frequently advocated by Republicans.
In the same way that increasing the pay cap without increasing benefits is unjust, it is also unjust to require people, particularly low-paid workers performing physically demanding duties, to work years longer in order to qualify for benefits.
A combination of alterations is the apparent solution to the issue. Increase the wage insured. Change the benefit formula to reduce payments to those with high incomes below the existing formula, increase payments to those with low incomes, and gradually raise the retirement age.
Why there are no simple solutions to Social Security’s problems: Another enticing idea is to tax a portion of investment income under Social Security. Or perhaps increasing the amount on which employers pay Social Security tax above the wage threshold while exempting workers from the corresponding 6.2% tax.
By examining Social Security Administration recommendations published since 2005, you can combine scores of alternative solutions. When examining these solutions, it becomes clear how difficult it is to fix Social Security.
I wish I could provide a simple one- or two-fix solution to Social Security’s budgetary problems. However, I cannot because there is no such solution.
To get the problem under control, we will need to form a bipartisan group, similar to the Greenspan group of the 1980s, to increase Social Security revenues, restrict payment growth, and implement other measures.
However, I am not holding my breath in anticipation. Neither should you either.
