Vox Pop - Offers solutions to fix Social Security

Vox Pop

Social security has been a political talking point for years and it once again is coming up. Often times, it is talked about as an intractable problem and can seem impossible to solve. However, it is actually a lot simpler than it is often presented, although the choices are not easy. I encourage you to ask for more honesty from politicians when they discuss social security and any plans for changes.

First, it is important to dispel some myths.

Myth 1: Social security is like a bank account, storing the money I contribute for my use in future. This is wrong - social security collects money from current workers and pays this out in benefits for retirees. It is a commitment to people who have already contributed to our country, but there is no bank storing your money. If you are currently working, your contributions are being spent right now and future workers will pay your benefit when you retire.

Myth 2: The issue is fraud/waste and getting rid of fraud will fix it. Is there some fraud, probably. Is there waste? A lot of the depends on perspective, but likely. Where does most of the money go? Directly to benefits paid to retirees, who are required to be US Citizens. Blaming waste and fraud is an easy out to avoid the challenging discussion, but reducing fraud and waste does not fix the overall system.

Myth 3: Social security is running out of money. This is wrong. The social security trust fund (surplus revenue that was gathered to help cover excess benefits) is running out. Each year, social security taxes bring in about 80% of what is paid in benefits to retirees. If the trust fund runs out, social security will still be there. Benefits would simply have to be cut ~20% to balance the budget.

And this is where it is simple - we pay more out in benefits than we collect in revenue. To fix it, you have to either increase revenue or decrease benefits paid out. The choice isn’t easy - if we cut benefits, some retirees will be okay, but many who live on fixed incomes, and were not high earners in the first place, will suffer and struggle to make ends meet. Alternatively, raising revenue means someone is paying more taxes.

Finally, what are some of the solutions? I will list out a couple below, but feel free to learn more about this yourself. The Committee for a Responsible Federal Budget has a tool that allows you to explore how to fix social security and see how decisions to change taxes or benefits would impact the program (www.crfb.org/ socialsecurityreformer).

What are some of the solutions? a) Remove the income cap on the social security tax. Currently, social security is only taxed on the first $400,000 of income. High earners do not pay social security tax on earnings above this amount. Assessing the social security tax on all income would increase revenue from higher earners and close about 67% of the gap. b) Increase the social security tax. The current rate is 12.4%, assessing 6.2% to employees and 6.2% to employers. If you increase this rate by 1.0% to 13.4%, that would cover about 30% of the gap. An increase of 2% would cover about 60% of the gap. c) Increase immigration. Part of the issue right now is that there are less workers per retiree than there was 70 years ago to help balance the system. In 1950, there were 16 workers per retiree. There are now three workers per retiree and the trend is continuing downward. If we want more workers to support the social security system, increasing legal immigration is the most likely source. d) Cut benefits. We could choose to cut benefits to address the shortfall, or even link benefits paid out to revenues. In 2035, a cut of ~17% would be required. Additional cuts would be required if no revenue increases occurred, with a cut of ~28% in 2075. e) Increase the retirement age. This is essentially a cut in benefit, delaying when someone can start taking their benefits. It is a tricky balance, as people are living longer (using more benefit), but it also seems callous to tell people who have worked 45-50 years, to just keep working longer. If you raised the age 1 year, it would cover about 13% of the gap. f). Means test benefits. This is a fancy way of saying “don’t pay out benefits to rich people”. On the one hand, this argument is appealing because rich people probably don’t depend on social security. However, for many, this can also challenge the sense of fairness - if they paid into the system, should they not be able to receive benefit payouts? If means testing was used to eliminate benefits for the top 1% of earners, this would close 18% of the gap.

Looking at this list, there is well over 100% of the problem solved. Again, it is a simple budget issue. We either have to increase revenue or cut the benefit. I have my personal opinions on which options make the most sense, but my goal is not to convince you of what to think. The bigger point is that we should not let politicians (or ourselves) dance around this issue and make impossible promises. I am tired of hearing people say that they believe in supporting our seniors and keeping the benefit the same and that they are against raising taxes and they will fix this through magic fairy dust. However you believe this should be fixed, make sure it is grounded in reality.

— Ben Koch, Medford