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As we all know, the Social Security trust is being depleted. The most often year mentioned is 2033, but that could change. The reduction in current benefits is projected at 21% – a hefty cut for most people, especially those relying heavily or totally on Social Security income.
Why are we in this mess? Simply because funding of Social Security has been inadequate for many years and for just as long one Congress after another has ignored the trustees pleas to take action sooner rather than later. The current revenue to the trust is inadequate and the number of workers trying to support those of us currently collecting benefits is shrinking relative to beneficiaries.
Congress does not have the fortitude to tell the truth and make required changes to the system and likely many Americans don’t want to hear it anyway.
The Social Security trust is funded in several ways – payroll taxes, income taxes paid on Social Security benefits and interest on the Treasury bonds held by the trust. Since those bonds are gradually being redeemed to pay current benefits, interest payments will decline over time.
My question is who will carry the burden of sustaining Social Security? Connie and I have been collecting benefits for 16 years. In reality neither we nor our peers provided adequate funding to sustain our benefits. In addition, we long ago started receiving benefits in excess of our payroll taxes paid during our working lives.
To me there is no logic in cutting benefits for younger workers and future retirees. In fact, as a society, the opposite is more logical, practical and necessary – another discussion.
However, should current workers alone carry the burden of adequately funding Social Security? We know workers are not funding their own benefits, but rather previous generations, but can we actually claim that for current for retirees like me?
Because of the inaction by Congress, those of us long retired got an unfair (IMO) break – we, in fact, did not pay the much overused “fair share” during our working years.
Should we help solve the 21st century financial problems?
Perhaps our entire benefit should be included as taxable income once we receive benefits exceeding the payroll taxes we paid. Or, should we forego future COLAs or have them modified at certain income levels as our part is fixing SS for the future.
If gradual changes had been made, like adjusting the payroll tax rate annually as needed, it would be different, but now there seems to be a growing generational unfairness – in my unconventional opinion anyway.
My Social Security fix is simple: protect the promise, phase in the pain, and make high earners pay their share. No surprise cuts for current retirees or people close to retirement. Then close the gap with a combo plan: lift/extend the wage cap so more high income gets taxed (without adding extra benefits on that extra pay), do a tiny payroll tax increase phased in over 10 years, and slow benefit growth only at the top while protecting low-income seniors with a real minimum benefit. Do that and we avoid the automatic across-the-board cut and keep the program dependable.
You could raise the tax and raise the payout – just put in a third bend point that pays a very small percentage. This would keep the principles of SS intact: the more you put in, the more you get out. But how many people make more than $180K over 35 years? A very small number. Yes, 10 or 20 years in the future SS might have to pay out slightly more to a small number of people, but it would have little overall impact.
Yes, that is the right approach but a partial solution. For example, Warren Buffet has a salary of $100,000. That is the basis for any benefits, but as you said few people earn over the taxable wage base in wages versus other income.
The current environment seems to be tax somebody else for what I want. I think we need to resist that tendency.