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Here are the results of an exercise to make Social Security last at least 75 more years. I used the Committee for a Responsible Federal Budget (CRFB) estimator.
✔️Increase the payroll tax rate by 2% shared by employers (1% each) or raise the 2% only on employers
✔️Eliminate the taxable wage cap, and also accrue additional benefits based on those taxed earnings using a 15% accrual rate. The same percentage as the lowest accrual or “bend point” uses now.
✔️ Apply SS taxes to the pre-tax health insurance premiums that workers with a cafeteria plan pay. This is consistent with 401k pre-tax contributions which are subject to FICA.
✔️ Cap future COLA adjustments for top 50% of SS beneficiaries. It would cap the size of the COLA so that high-income beneficiaries receive the same COLA dollars as the median beneficiary.
There are no changes to benefit accrual, or full retirement age or taxation of benefits.
One additional possible change would make the SS benefit taxable similar to a contributory pension. This option would only tax Social Security benefits in excess of worker payroll tax contributions, which are made post-tax. In practice this would mean no taxability on SS benefits for the first 5-6 years and then 100 taxable income. Which, of course, does not mean tax is actually due in all cases. This closes the funding gap by an additional 5%.
Another important change would put future changes to the tax rate on automatic so that the Social Security actuary would set the rate each year to assure the 75 year solvency goal is always achieved. No Congressional action required. Keeps politics out of it.
Should Congress make changes to the system, the tax rate would automatically be adjusted to cover the cost or account for savings.
This is similar to setting the Medicare Part B premium to maintain 25% beneficiary premium cost sharing of the growing costs.
This has to be fixed by Congress, right?
is that still an active institution in our country?
I find the 4 changes described in the CRFB exercise generally “acceptable”, in light of the context. There will necessarily be some (significant) pain involved to fix the untenable status quo trajectory, so it’s really just a problem of deciding “who” bears how much of that pain.
Politicians want to bear as little of the pain as possible (in terms of electoral backlash), so they’re delaying the legislative debate/ negotiations on this matter as long as possible – what a surprise! Which of course make the ultimate cost to taxpayers & beneficiaries of any solution more painful, even in inflation adjusted terms. (“A stitch in time saves nine…”)
It’s not surprising that 3 of the 4 proposed changes address adding more revenue to the program, while only 1 (change #4) attempts to reduce SS benefit payments/ costs. I’d love to see the relative financial impact of each of these 4 changes. I suspect the 4 proposed changes described are listed in order of decreasing financial impact, which if true means the COLA payment reduction for high earnings (#4 above) is contributing the least to this “75-year solution”. (BTW, did the 1983 legislative changes appear to deliver the expected solvency relief in years, based on the latest projections, or will it fall short in that regard?)
Like Ray Dalio, Jeremy Grantham and MANY other smart people whose writings I find credible, I do believe we have a significant income/ wealth imbalance in this country as of June 2026. Which ultimately becomes very problematic even for the very wealthy…and weakens civil society (social order) which democracy depends upon. So I believe the financial solution to this math problem does need to ask relatively more of the very wealthy than it does of the “bottom 60%” (or whatever) of beneficiaries.
I’m a capitalist to my core and believe in free enterprise/ limited government, but a healthy democracy requires a thriving middle class. The US is becoming a more polarized country economically – hence the “K-shaped recovery” explanation for our current economic metrics. It’s a real thing!
I have suggested modifications to 3 of the 4 changes above:
Yes, both changes #3 & 4 are just another form of means testing. But note that the vast majority (> 90%?) of the “pain” to come from changes #1 – #3 above will be born by future retirees, not baby boomers (current retirees), or by their older adult children. Borne by our grandchildren, and their kids. So in that context, I would support an incremental increase in means testing…which our current system already incorporates in a number of ways.
Personally I’m fine with the uniform cut that will go into effect in a few years if nothing is changed. At least it’s the same flat percentage for everyone instead of any unfair “progressive” adjustment.
You may not think that if your income was largely or only your SS benefits. An equal percentage would be of no comfort. I’m pretty sure the average retiree losing $500 a month in income is a pretty big deal and little concern someone like me loses $750 +
Steve, do you think that a sudden reduction in benefits would have any negative effect on the economy?
Straightforward – yes. Easy – no.
Question: On the possibility of putting “future changes to the tax rate on automatic so that the Social Security actuary would set the rate each year to assure the 75 year solvency goal is always achieved,” does that mean annually changing your suggested payroll percentage of 17.65%? That would make employer budgeting very difficult.
It would not necessarily mean annual changes. The actuaries look at a 75 year projection and all the factors affecting it, population changes, retirement patterns, interest rates, inflation, life expectancy, etc. An annual change is not mandatory. It’s similar to an employer pension plan, but in that case they also must project stock market performance.
The alternative is what we have now – neglect for decades and trying to play catchup.
Or maybe to smooth out the rate of change calculate the tax rate based on a three or five year rolling average.
Federal law requires pension plans to maintain a certain minimum funded status (80%) of projected liabilities or pay extra insurance premiums.
I don’t think it unreasonable to apply some minimum funded status to SS.and require the reserves to always cover X years of benefit payments.
Amen.