Social Security: A critical program with an uncertain future

Make no mistake about it, Social Security is deeply intertwined with the fabric of America’s well-being.

Its checks to retirees and the disabled, plus their families, help over 63 million people pay the bills. Without it, about a third of elderly Americans would live in poverty, and nearly 25 million count on it for at least half their income.

But the $1 trillion-a-year program faces some daunting math.

As more people retire, there are fewer workers paying in to cover the cost of the money going out.

Social Security has roughly $2.9 trillion in its combined trust funds. If nothing changes, those reserves will run out by about 2035. The program will continue to pay benefits, but without additional taxpayer dollars, it could only afford to pay between 70% and 80% of the benefits people expected.

The main takeaway from any assessment of the challenge is that the sooner changes are made, the easier it will be for people and businesses to adapt. On the flip side, the longer a solution is put off, the harder it will be when the final reckoning comes.

Social Security is like a forest pond with a stream flowing in at one end and water flowing out the other. If the pond is shrinking, there are only three ways to save it: increase the amount coming in (higher taxes), reduce the amount going out (cut some benefits), or count on rain from above to fill the pond (get a higher return on money in the trust funds today).

The Social Security Administration compiled a list of legislative ideas that would extend the life of the trust funds.

By and large, the bills in Congress now rely on option No.1 –– raising taxes to pay for future benefits. The number crunchers at Social Security estimated how much longer the trust funds would last under the different proposals.

The government’s maximum time frame is 75 years, or 2093, and one bill achieved that. The package from Sens. Richard Blumenthal, D-Conn., and Chris Van Hollen, D-Md., and Rep. John Larson, D-Conn., would gradually raise the current combined employer-employee payroll tax of 12.4% to 14.8% by 2043. The rate would go up one-tenth of a percent each year.

Their package also changes the rule for high earners. They would apply the payroll tax to earnings over $400,000. Today, the maximum taxable amount is just shy of $133,000.

The specifics vary, but other bills extend the solvency of the trust funds by making similar changes — raising the payroll tax for everyone and applying the tax for the first time to earnings above a certain level.

Sen. Bernie Sanders, I-Vt., co-sponsored a plan with Rep. Peter DeFazio, D-Ore., that would stretch the life of the trust funds to 2071. It would apply payroll taxes to income over $250,000 and levy a new 6.2% tax on investment income for couples making over $250,000 a year.

The Trump administration has said little about the retirement side of Social Security, but it has put forward changes in how it runs the program for the disabled. The goal is to more quickly spot people who have become healthy enough to go back to work. 

Advocates say the changes could remove hundreds of thousands of vulnerable people from the rolls.

In addition to his bill, Sanders has announced plans for the program in his Democratic presidential campaign. He would give the very poorest seniors, those making less than $16,000, an additional $1,300 a year. And he would increase the minimum benefit paid to low-income workers.

Sen. Elizabeth Warren, D-Mass., would give every recipient an additional $2,400 a year and pay for it by raising taxes on the wealthy. Wages above $250,000 would be subject to a 14.8% tax, and the same rate would apply to a new net investment tax that would fall on individuals making over $250,000 or families making over $400,000.

Joe Biden would increase the minimum benefit for lifelong workers and make payments for the oldest people more generous. He would raise taxes on upper income households, although his plans doesn’t say by how much.

Pete Buttigieg would offer a minimum benefit of 125% of the federal poverty line to those who have worked at least 30 years. He would apply Social Security taxes starting at income over $250,000 for an individual or $500,000 for a couple. Buttigieg would also establish a public investment plan (a form of 401K) to help people save for retirement.

Sen. Amy Klobuchar, D-Minn., would also impose a Social Security tax on earnings over $250,000.