For many retired Americans, Social Security provides a financial foundation that ensures they stay out of poverty. More than 60% of all retired workers current relies on Social Security for at least half of their monthly income, and a third count on it for 90% or more of their income.

Social Security is racing toward big problems

The bad news is this critical foundation is beginning to buckle. The ongoing retirement of an average of more than 10,000 baby boomers a day is weighing on the worker-to-beneficiary ratio. Also, people are generally living longer than ever. What was once a program designed to pay seniors for a few years during retirement has now become a program that could be on the hook for two decades or longer for some retirees. The end result is a downward spiral for America's most important social program.

Dice sitting next to a piece of paper that reads "Will Your Social Security Be Enough?"

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A few months ago, the Social Security Board of Trustees released its latest report highlighting what's to come for the program. By 2022, the Trustees foresee more being paid out in benefits than is generated in income. By 2034, the nearly $3 trillion in asset reserves will be completely exhausted. 

Thankfully, payroll taxes paid by working Americans will ensure that revenue is continuously generated for Social Security, meaning it can never go bankrupt. The downside is that the current payout structure may not be sustainable. The trustees have opined that a 23% across-the-board cut in benefit may be needed by 2034 to preserve Social Security through the year 2091. For those heavily reliant on the program, that's a downright worrisome forecast.

Here's how the public would fix Social Security

Changes are necessary to Social Security if payouts are to remain at their current levels. But the debate on Capitol Hill has long been what those changes should be. Democrats and Republicans have butted heads on numerous occasions over Social Security, and have failed to come together to pass meaningful reforms in 34 years. The chances of reforms passing during the Trump administration seem unlikely, especially with President Trump himself proclaiming during his campaign and while in the Oval Office that Social Security reforms are off the table.

So, what should be done? If we simply listen to the public, a vast majority would like to see three things happen.

Social Security cards on top of a pay stub, highlighting payroll taxes paid.

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1. Raise payroll taxes on all working Americans

One of the best ways to counter a growing number of eligible beneficiaries is with an increase in the amount of revenue collected by the program. Since the payroll tax accounted for 87.3% of the $957.5 billion collected in 2016, adjusting the payroll tax higher for all working Americans would be one way of achieving that goal.

The payroll tax that workers pay, known as the FICA tax, is made up of two components: a 12.4% tax that goes to Social Security, and a 2.9% tax that heads to Medicare. The Medicare tax is subject to all earned income, whereas the 12.4% tax for Social Security applies to earned income between $0.01 and $127,200, as of 2017. That means any earned income above $127,200 is free and clear of Social Security's payroll tax.

Furthermore, most workers aren't on the line for the full 15.3% FICA tax (12.4% Social Security plus 2.9% Medicare). If you're employed by someone else, chances are very good that you're only responsible for half of this figure (6.2% to Social Security, and 1.45% to Medicare). Your employer picks up the tab on the remainder.

Nevertheless, a majority of Americans are in favor of boosting the overall payroll tax for Social Security if it means a healthier payout for future generations. The "Voice of the People" survey, conducted last year, questioned more than 8,700 people about their feelings toward payroll tax increases. An overwhelming 76% of respondents were more than willing to see their responsibility rise to 6.6% from 6.2%, implying an overall tax increase of 0.8% to 13.2%.

While it's good news in a sense that workers would like to see payroll taxes rise across the board, the amount they'd need to rise (2.83% in aggregate, according to the Social Security Board of Trustees, or 1.415% for working Americans), wouldn't receive nearly as much support. A 2% aggregate increase had the support of just 19% of respondents, so we can only imagine a 2.83% increase would have even less support. Thus, the public wants to see payroll taxes increased -- but not too much. 

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2. Raise the maximum taxable earnings cap on the wealthy

Another way to generate more revenue for Social Security is to adjust the maximum taxable earnings cap. This is the aforementioned $127,200 figure that serves as the current ceiling for the payroll tax. It's adjusted upward most years in step with the Average National Wage Index.

Why have a cap in the first place, you wonder? The reason it's there is that there's also a cap on what Social Security will pay out in benefits per month at full retirement age. It doesn't make much sense to tax someone up to $5 million in earned income if the most he or she can expect per month from Social Security in retirement is $2,687 a month. 

Then again, this summarizes the argument in favor of raising or removing the maximum taxable earnings cap: namely, the wealthy probably aren't reliant on Social Security income, and therefore should pay more into the system. Raising or removing the cap would affect only about 10% of all workers, which means John and Jane Q. Worker aren't going to notice a difference. Plus, the added income from the wealthy may be enough to completely cover the expected $12.5 trillion shortfall between 2034 and 2091, as predicted by the trustees.

In 2014, The Washington Post conducted an informal survey that offered 12 ways to fix Social Security and allowed online users to select as many solutions as they'd stand behind. Just one of the solutions had a majority of the votes. After nearly 6,900 responses were tallied, 68% of users chose the idea of taxing higher-income individuals by either removing or raising the maximum taxable earnings cap. 

A Social Security card atop IRS 1040 tax forms.

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3. Eliminate the taxation of Social Security benefits

Another way of boosting benefits for seniors is to ensure that they don't have to hand over any of the payouts they receive from the SSA.

Believe it or not, your Social Security benefits are taxable, and the data suggests that you have a better chance than not of having to pay some federal income tax on your benefits during retirement. The Senior Citizens League found that as of 2015, 56% of senior households were paying at least some tax on their Social Security benefits.

Why on Earth are Social Security benefits taxed? Back in 1983, the last time major amendments were made to Social Security, the taxation of benefits was introduced as one of many ways to generate more income for a program that was running short on cash. It was deemed then that up to 50% of your benefits could be subject to federal income taxation if you earned beyond $25,000 as an individual or $32,000 as a joint-filing couple. In 1993, under the Clinton administration, a second tier was added such that 85% of your benefits become taxable if you earn more than $34,000 as an individual or $44,000 as a couple in a year.

When this tax was introduced, it was expected to affect only around 10% of all households. However, with the income thresholds not being adjusted for inflation over the past 34 years, they now affect the aforementioned 56%.

However, according to a survey released in March from The Seniors Center, a Washington, D.C.-based nonprofit organization, an overwhelming 91% of retired Americans believe Social Security benefits should no longer be subject to taxation. The idea is that no federal taxation on benefits would help seniors keep up with the rising costs of medical care and housing. Unfortunately, it would remove nearly $33 billion in annual income from the program, which would be difficult to immediately replace.

Perhaps it's time for lawmakers in Washington to listen to their constituents.

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