Greater than 70 million Americans receive monthly Social Security checks. Over 180 million current employees are paying into the system and expect advantages down the road. But this system is running out of cash.
So naturally, proposals are swirling on either side of the political aisle to make changes to Social Security because the clock ticks toward a projected 2035 depletion date.
Experts recommend addressing the issue sooner moderately than later, and 87% of Americans agree with that sentiment. Unfortunately, there’s been little political consensus to take any concrete steps to repair this system, mainly because all the ideas being floated are unpopular amongst one group or one other.
Politicians are especially unlikely in an election 12 months to advertise plans that involve raising taxes, increasing the retirement age for Social Security recipients or reducing retirement income. Yet voters will proceed to listen to about possible changes to Social Security through the upcoming election cycle and beyond — because this system is critical to thousands and thousands and the funding problems can’t be ignored perpetually.
Donald Trump vs. Kamala Harris on Social Security
With no legislative solution, Social Security trust fund reserves are on course to be depleted just over a decade from now. At that time, only 83% of advantages could be paid to recipients.
On the campaign trail, Vice President Kamala Harris and former President Donald Trump have been united in no less than one promise on Social Security: pledging not to chop anyone’s advantages.
“The issue is that neither of them really has a plan to pay for the advantages,” says Andrew Biggs, a senior fellow on the right-leaning American Enterprise Institute.
Congress’s inaction and the dearth of solutions from the 2 nominees are concerning because the problem has been neglected for too long already, he says.
As a substitute of a plan to properly fund Social Security, Trump has announced he desires to eliminate federal taxes on advantages and openly disagrees with House Republicans who want to lift the retirement age. “I’m going to go away Social Security. I’m not raising the years, I’m not raising the age. I will likely be saving Social Security,” Trump said in a recent news conference.
As for the way the country goes to proceed paying full Social Security advantages, voters mainly only hear about vague ideas from the presidential campaigns. For instance, Trump said, “we’re a rustic that has so many alternative ways to generate income” when addressing Social Security’s underfunding, while vice presidential nominee J.D. Vance has offered the unrealistic suggestion that increasing labor participation could by some means solve the issue.
Democrats, when asked about Social Security, typically say they wish to strengthen this system and are inclined to support raising taxes on high earners. The Harris campaign hasn’t come out with a particular plan to deal with the funding shortfall, but Harris and vice presidential nominee Tim Walz have previously supported raising payroll taxes on people above certain income levels.
Beyond the presidential campaigns, members of Congress, think tanks and economists have their very own ideas about the best way to change or fix Social Security.
5 Social Security proposals (and the way they’d affect advantages)
Listed here are five of the possible changes to Social Security — and the way they’d work:
Raise the retirement age
Of their latest budget proposal, House Republicans suggest increasing the retirement age for future retirees.
The retirement age, which determines when people can claim full Social Security advantages, was last increased by a 1983 law that steadily raised it from 65 to 67 over a period of twenty-two years.
Despite the fact that each Trump and Harris oppose raising the retirement age, Biggs says the general public might have to brace for this to occur because it’s one of the obvious levers Congress could use to deal with the funding issue.
House Republicans emphasize that people who find themselves in or near retirement wouldn’t be affected. Still, the general public backlash to the concept of working longer would likely be enormous.
The budget proposal from House Republicans doesn’t specify a latest retirement age, but steadily raising it to 69 is one of the common suggestions in Social Security reform discussions. Unfortunately, increasing the retirement age to 69 would only fix about 20% to 30% of the looming shortfall.
“The funding gap is rather a lot greater than people think it’s, so that you would want the retirement age, plus a complete range of other things” to shut the shortfall, Biggs says.
End federal taxes on Social Security
In campaign speeches, Trump has been promoting a plan to eliminate federal income taxes on Social Security advantages, that are currently paid by about 40% of beneficiaries — those that have greater than $25,000 of combined income. “To assist seniors on fixed incomes who’re suffering the ravages of inflation, there will likely be no tax on Social Security,” he said in a recent rally in North Carolina.
Rep. Thomas Massie, R-Ky., has a bill that might do exactly this, but he’s introduced it six times and it hasn’t gone anywhere. The bill also discourages Congress from levying higher taxes to provide you with revenues.
Social Security advantages haven’t all the time been taxed. The tax was created in 1983 and expanded in 1993. Nevertheless, opponents of Trump’s idea say it will be reckless to finish the taxation without making other changes to offset the lack of revenues.
While most of the foremost proposed changes to Social Security revolve around shoring up the trust funds, ending income taxes on advantages would do the alternative. In accordance with the Committee for a Responsible Federal Budget, this move would increase deficits by $1.6 trillion to $1.8 trillion through 2035 and increase Social Security’s 75-year shortfall by 25%.
Individually, a gaggle of Democratic lawmakers have signed on to a bill that might end federal income taxes on advantages, but it surely’s part of a bigger proposal that might also significantly increase how much of somebody’s wages are subject to Social Security taxes in a 12 months.
Raise taxes on high earners
Over time, Democratic lawmakers and left-leaning groups have recommend multiple proposals to strengthen Social Security by raising taxes on high earners.
The bill that has seen probably the most support is the Social Security 2100 Act, which greater than 200 House Democrats gave their support to after it was introduced in 2021. Amongst other changes, the bill would expand Social Security payroll taxes to incorporate income above $400,000.
Under the present system, only the primary $168,600 of a person’s earnings are subject to the Social Security payroll tax, which is 6.2% of wages for the person and one other 6.2% for his or her employer.
The Democrats’ plan would create a “kind of a donut hole,” Aaron Cirksena, founder and CEO of MDRN Capital, explains. “You are taxed as much as $168,600, then there’s not tax from $168,600 to $400,000, but then from $400,000 and anything above — or as much as whatever limit they select — is getting taxed again.”
Enacting the Social Security 2100 Act would move the projected depletion date back by about 32 years, in accordance with a July 2023 evaluation by Stephen Goss, chief actuary on the Social Security Administration.
In theory, Democrats could also try to increase the solvency of Social Security by increasing the payroll tax rate for everybody, but that path looks less likely in the mean time. (Harris has maintained Biden’s pledge that the federal government won’t raise taxes on anyone earning lower than $400,000.)
Payroll taxes would should be increased from 12.4% to fifteen.7% on employees in any respect income levels to proceed paying full advantages, in accordance with a report from the Social Security trustees.
Reduce cost of living adjustments (COLAs)
Social Security advantages are adjusted annually based on a government index called the CPI-W, which tracks monthly price changes in goods and services for urban wage earners and clerical employees. Principally, the COLA (cost of living adjustment) boosts Social Security payments in order that they can sustain with inflation.
Democrats including President Joe Biden support switching to a more generous COLA formula (based on a distinct inflation tracker, the CPI-E). Meanwhile, some conservatives want to cut back COLAs to ease the Social Security funding deficit.
Unlike increasing the retirement age, which might make an impact in the long run, reducing COLAs would have a near-immediate effect because the change would affect current and future beneficiaries.
Reducing COLAs by half a percentage point would make up about 29% of the long-term funding gap, Biggs says.
“[Democrats] claim that we must always pay higher COLAs,” Biggs says. “At the top of the day, though, when this thing goes broke, I won’t be surprised if we find yourself reducing COLAs.”
Cirksena adds that Congress could also opt to cut back the COLA by tying it to the chain-weighted CPI index, an inflation measure that accounts for shifts in consumer behavior and tends to grow slower than the CPI-W. This transformation would amount to an estimated 0.25 percentage point reduction within the calculated inflation rate, in accordance with the Congressional Budget Office, and that might translate to a lower COLA for Social Security beneficiaries.
Means testing
A way test is a government assessment used to find out a person’s eligibility for a particular program in addition to the extent of assistance they need to receive.
No such test exists for Social Security, which pays advantages to older Americans based on their earnings history.
Cirksena says he would not be surprised to eventually see Democrats show support for some kind of means testing, which could involve reducing advantages for individuals with higher incomes or net worths. For now, though, most Democrats appear to prefer to extend taxes as an alternative of means testing advantages or cutting payments to the rich.
Previously, Republicans including former President George W. Bush and former Speaker of the House Paul Ryan have supported reducing advantages for individuals with greater means, Biggs says.
Nevertheless, the concept has faded out of the political discussion on the best in newer years, especially with Trump’s guarantees not to chop advantages.
More from Money:
When Social Security Recipients Will Get Their Checks in August
Social Security COLA for 2025 Could Be Over 2.6%, In accordance with Recent Predictions
Boomers Are at Higher Risk of Running Out of Retirement Money Than Younger Staff