Social Security Will Be Broke by 2034 — Are Tax Hikes the Only Solution?
Social Security will be able to pay full benefits until 2034 but will then face funding shortfalls if lawmakers don’t take action, according to the 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. And now, several tax-hike proposals could help bridge the funding gap.
The trustees estimate that Social Security’s combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust fund reserves will be depleted in 11 years. Then, Social Security could still pay 80% of scheduled benefits using its payroll-tax income even if policymakers take no steps to shore up the program.
Now, to make up for the funding discrepancy, the trustees believe policymakers should increase Social Security’s tax revenues.
“Social Security will necessarily require an increasing share of our nation’s resources as the population ages, and polls show a widespread willingness to pay more to strengthen the program,” the Center on Budget and Policy Priorities noted, citing the report.
Some of the proposals include the Social Security Expansion Act, introduced by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) in February. The law would lift the income cap and subject all income above $250,000 to the Social Security payroll tax.
“Under this bill, over 93 percent of households would not see their taxes go up by one penny,” according to the bill’s fact sheet.
Additional proposed solutions include increasing the payroll tax rates — which has overwhelming bipartisan support, according to a University of Maryland Program for Public Consultation survey. Currently, the total payroll tax rate that funds Social Security stands at 12.4% of the first $160,200 of wages, with employers and employees each paying half. Last year, when the cap stood at $147,000, the program noted that raising the tax rate to 6.5% would eliminate 16% of the estimated shortfall.
Other solutions include raising the retirement age to 68, which would reduce the budget shortfall by 14%.
Many experts agree that delaying reform to Social Security is costly.
“If lawmakers act soon to address the trust fund shortfalls, they will be able to phase in changes gradually and responsibly in a way that does not harm vulnerable populations,” the Peter G. Peterson Foundation noted in March.
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“However, delaying reform would require larger changes to the program. If action is not taken until 2034, the tax increases or benefit reductions required to stabilize the program’s financing would be nearly 20% larger than if action were taken today.”
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