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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.
I agree. We have been retired 14 years. I get a no COLA pension and SS. We have so far not had to touch our savings which has grown a lot since retirement. I always felt there would be some form of means tax on SS, and I am ok with that, even though our benefit would be reduced or we would pay more taxes.
I think the SS benefit should be aligned more with those who truly need it to live on.
There already is a form of means tax on SS:
To receive tax-free Social Security, your annual combined, or provisional, income must be under certain thresholds:
$25,000, if you’re filing as an individual$32,000, if you’re married filing jointlyFor married couples filing separately, the IRS begins taxing your Social Security benefits at the following thresholds:
$25,000 if you’re married filing separately and lived apart from your spouse for the entire year.$0 if you’re married filing separately and lived with your spouse at any time during the year.Your combined income consists of three parts:
Your adjusted gross income, not including Social Security incomeTax-exempt interest 50 percent of your Social Security income.
Most SS recipients pay income tax on 85% of their check.
I see no reason the greater portion of benefits should not be taxable. Not taxing SS benefit would be like not taxing an employer- funded pension.
The fair way to do it would be make benefits up to what the worker paid in payroll taxes, tax free and 100% taxable thereafter.
Of course making benefits taxable does not always mean taxes need actually be paid.
According to the SSA About 40% of people who get Social Security must pay federal income taxes on their benefits.
All but the first and last sentences of my post was from a researched source. The last sentence was an assumption based on how low the figures are that are noted. My bad for assuming. Thanks for correcting.
PS: If only 40% of recipients are taxed at such a low dollar amount it is another argument that the vast majority of recipients (including my soon to be 103 yo mother in law) can’t afford a cut in benefits, especially if it is their only source of income.
My thoughts……Realize as a Country that makes our own currency, we can’t run out of money. Review the details for MMT or Modern Monetary Theory. The decision is on how we spend our money, who we want to be as a Country, and balacing the spend with inflation. I think raising the income level on what level of income is taxed for SS should be the first step in helping to continue to fund the program. This social safety net will not go away.
That theory has pretty much been debunked.
Considering the steadfast ideology of no new taxes among many of our elected officials, is it possible that our politicians will simply let the fund go bankrupt? Their position would be: “There aren’t enough funds coming in, so benefits will have to be reduced accordingly.” This approach would allow the politicians to say it’s not their fault, but rather simply a consequence of the design of the system. We will have to all tighten our belts to weather the bubble caused by the baby boomers all retiring.
This is what I wonder. Chris
“Simply because funding of Social Security has been inadequate for many years”
No. Funding is fine, qualifying ages have not been adequately adjusted and payments are too high.
Payments are too high? I bet a lot of people would have another point of view, especially lower 50% income level.
Especially when those who started working in the 80s had their retirement ages increased as much as two years which already effectively reduced payments by 13 percent due to changes enacted in 1983.
And if the trust fund dries up an effective cut of 17 percent would result, resulting in a 30 percent cut in payments since I began working.
Perhaps corrupt does not feel like that is a large enough penalty.
I agree, why has the age to collect full social security benefits only been increased by 2 years, from 65 to 67? When social security was initiated in 1937 the life expectancy of Americans was less than 65 years old. Today the life expectancy of Americans is greater than 78 years old. I think full retirement age needs to be increased by many years, not sure what that increase should be but of course it’ll need to be grandfathered in.
Life expectancy has increased, but but equally for all groups of people.
Why not abandon the linkage with hypothecated funding and simply run a Ponzi scheme out of aggregate income taxes and SS taxes which amount to the same thing in the end?
That’s what happens in other countries.
The original idea was to limit political control, keep SS out of budget debates and general revenue and to gain Americans support for the program by letting people see the new tax was always going to benefit them directly.
To me that is still very sound thinking. That’s why I said the tax rate should be auto adjusted each year simply reflecting the actuarial projected costs. That could mean the rate would go down in some years.
I would also favor employers picking up a slightly higher percentage of the tax for workers perhaps an extra 0.5% to 1%.
” So I said to these actuary guys… I said to them you’ve got to do better… You need to do better because these people… these beautiful Americans.. they can’t afford those taxes. So they’re fired.. we’ll get better actuary guys… very smart…almost as smart as me…the best…. and they’ll fix it. Don’t worry”
No politics really?
I think the word is “limit”. Curious. Is that a quote?
Seriously?
No it’s a plausible hypothetical quote to make the point that your idea is even less likely to become reality now.
You correctly mention the several ways that the trust is funded. Now a promise has been made to stop taxing SS benefits. What effect will this have on the depletion of the fund, and will it create more of a burden on current workers?
Perhaps we don’t need to stop taxing benefits, just adjust the threshold for inflation since taxing benefits began. Why is this singular threshold not indexed?
Under the Senate’s current rules, any changes to SS would require 60 votes.
So now my question is are there 41 senators brave enough to tell us the truth and risk loosing their next election by casting a no vote?
In 2023 the taxation of SS benefits contributed $50.7 billion to the trust (plus additional contributions to the Medicare trust). The loss of that revenue will accelerate the depletion of the trust. The burden to make up the difference will fall somewhere.
A study I recently read reported that the combination of not taxing SS, nor tips would deplete the trust fund in 2031. Plus those servers who would not pay income taxes on their tips would receive lower benefits.
I thought people might find this interesting, especially the app that lets you make changes to balance the shortfall.
Academy of Actuaries Ideas on SS
These tools are interesting, but they ignore demographic changes and other things that might affect the number of workers paying into the fund. Should AI be implemented successfully, or immigration actually curtailed, there might be dramatic reductions in the numbers of workers. Any such reduction would damage the program’s viability.
As a math person, they’re always just knobs. How much you turn them always depends on whether you’re willing to pay the freight.
I think ignoring demographic changes is how we got here in the first place. Actuaries and economists are pretty good at figuring out how much turn you need to get what you want. They’re not good at all at the politcal side.
The Committee for a Responsible Federal Budget has an interactive on its website that allows similarly projections. It’s surprisingly easy to come up with a combination of relatively minor changes to get the job done.
My feeling is the tax rate should be adjusted automatically every year based on the actuarial projections and demographic changes so the program is always in balance. No politics required.
I’m certain that the fixes are relatively easy that they’ll be enacted and that it will require both increased taxes and benefit realignment. There won’t be political will until the people in office fear not acting.
Agree. Bowles-Simpson came out in 2010. No one had the will to follow the recommendations then or since.
Agreed. We need to be contacting our elected reps.
This, right there, makes SO much sense! So many other things are adjusted on an annual basis, this would appear to be one that would certainly benefit from such adjustments and would also be considered “logical” for those of us used to other adjustments.