With Social Security moving closer to the depletion of a major funding source, you’ll find no shortage of proposals on how best to fix the program. There’s also no shortage of people offering their two cents’ worth, from lawmakers and policy advisors to academics, researchers and senior advocacy groups.
Which proposal best addresses the looming shortfall depends on who you ask. What most everyone agrees on is that something needs to be done to fix Social Security before the program’s Old Age and Survivors Insurance Trust runs out of money. That could happen within the next decade, leaving Social Security solely dependent on payroll taxes — which currently cover only about 77% of benefits.
President Joe Biden has rolled out his own 4-point plan to boost the program, with much of the emphasis on getting a bigger tax contribution from high earners and company executives. Meanwhile, Republicans’ fixes tend to focus on Social Security spending cuts or privatization plans.
Here’s a look at seven leading proposals to save Social Security.
Tax the Wealthy
Most of the proposals in this area involve raising the annual income threshold on wages subject to Social Security payroll taxes. Currently, any wages above $160,200 are not taxed. Some lawmakers recommend raising that figure to $250,000 or higher to bring in more revenue. Under Biden’s 4-point plan, the Social Security tax would apply to all earned income above $400,000, leaving wages between $160,200 and $400,000 untaxed.
Not everyone supports this idea. As The Motley Fool recently reported, attemptsto collect additional tax revenue on the rich “would likely be met by some high earners shifting how they generate income.” This might involve putting more money into assets that are not subject to payroll tax, such as dividend income, capital gains, rental income for non-rental professionals, and bond income.
A separate analysis by the Urban Institute — conducted in 2020, when Biden presented his Social Security proposals as a presidential candidate — also found holes in the plan. As that analysis pointed out, projected revenue increases “would outstrip” scheduled cost increases under Biden’s plan, improving Social Security’s finances. However, the Urban Institute projected that the plan “would not raise enough revenue to cover all scheduled benefits. Social Security would still run a deficit every year under his plan, but not as much as it would under current law.”
This proposal has been pushed by former Vice President Mike Pence, a 2024 presidential candidate. During a speech at the National Association of Wholesaler-Distributors summit earlier this year, Pence proposed giving younger Americans “the ability to take a portion of their Social Security withholdings and put that into a private savings account.” This idea is unlikely to get approved anytime soon, however. Most lawmakers — including nearly all Democrats — have pushed back against privatization efforts.
Raise the Full Retirement Age
You can start receiving your Social Security benefits as early as age 62, but you won’t be entitled to full benefits until you reach your full retirement age — currently 67-years-old for workers born in 1960 or later. By raising the full retirement age to 69 or 70, lawmakers hope to make more workers ineligible for full Social Security benefits, which would slow the pace of the trust fund’s depletion.
Cut Benefits Across the Board
This is a hugely unpopular idea — which is why few lawmakers openly support it. However, U.S. House Speaker Kevin McCarthy (R-Calif.) and others have hinted that Social Security expenditures need to be reduced to help balance the budget, and benefit cuts are one way to do that.
Cut Benefits for High Earners Only
This proposal would likely garner more support than imposing an across-the-board cut. Reducing Social Security benefits for high earners can help bolster the program’s finances — without having much financial impact on high earners, who have sufficient wealth built up in stocks and other investments. Lawmakers could also adjust the way Social Security benefits are calculated to reduce the amount higher earners would receive in their golden years.
Increase Payroll Taxes
Currently, both employees and employers contribute 6.2% of wages in payroll taxes to fund Social Security. By increasing the rate, Congress could pump more money into Social Security.
Change the COLA Calculation
Social Security beneficiaries get a “raise” in the form of annual cost-of-living adjustments (COLAs) that boost monthly payments based on the previous year’s inflation rate. The problem is, the COLA doesn’t do much good if the inflation rate continues to rise. That’s what happened in 2022, when the 5.9% COLA was almost immediately offset by an inflation rate that spent much of the year above 7%.
Biden and others propose changing the calculation for determining the annual COLA so it is no longer based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Instead, they favor basing the COLA on the Consumer Price Index for the Elderly (CPI-E), which accounts for costs that are relevant to seniors. While this proposal might not directly address the funding shortfall, it does provide a way to protect benefits without raising taxes or cutting benefits.
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