Social Security is truly an incredible social program. Each month, more than 62 million people, comprised of retired workers, survivors of deceased workers, and qualifying long-term disabled workers, receive a benefit check. And for over 22 million of these beneficiaries, this payout will keep them out of poverty, according to the Center on Budget and Policy Priorities. That's how crucial a role this program plays in helping to keep seniors, the disabled, and the survivors of deceased workers on solid financial footing.
Social Security is set to face its biggest challenge yet
However, America's most important social program isn't on solid ground. The latest report from the Social Security Board of Trustees, released in June, points to trouble in the not-so-distant future. The Trustees estimate that Social Security will expend more than it generates in income this year for the first time since 1982. Although we're only talking about a projected net cash outflow of $1.7 billion, the point is that it signifies the unsustainability of the current payout schedule.
Of course, the outlook gets much worse. With these net cash outflows accelerating as a result of numerous demographic shifts by 2020 and beyond, Social Security's nearly $2.9 trillion in asset reserves are expected to be completely depleted by the year 2034. Without any excess cash, Social Security will say goodbye to one of its three sources of income (interest).
What's more, without any help from lawmakers, it's expected that this exhaustion of the program's asset reserves will lead to an across-the-board benefits cut of up to 21% for existing and future beneficiaries by 2034. That's a terrifying proposition, with 62% of current retirees leaning on Social Security for at least half of their income.
It's been a long time since Congress "fixed" Social Security
Without beating around the bush, Social Security needs congressional help to right the ship. Whether that means increasing revenue, decreasing program expenditures, or implementing some combination of the two, seniors, the disabled, and survivors are counting on lawmakers to get things done. Yet here we are, 16 years from imminent disaster, and Congress hasn't acted to fix Social Security for a really long time.
The last time Congress really attempted to address the issues facing America's most important social program was back in 1983, during the Reagan administration. The Amendments of 1983, which went into effect in 1984, established a number of new rules for Social Security, including:
- An increase in the full retirement age to 67 from 65 over the course of four decades.
- The introduction of the taxation of benefits for beneficiaries earning more than a specified income level.
- A gradual increase to the payroll tax rate charged to workers and/or employers.
- Placing new federal employees under the Social Security program, thereby feeding in additional payroll tax revenue.
Since being implemented, these measures have allowed the program to generate a net cash surplus in each of the past 35 years -- although, as noted, this is expected to end in 2018. With the exception of a few minor changes to the taxation of benefits structure in 1993 and the retirement earnings test application in 2000, Congress hasn't addressed the expected cash shortfall in Social Security since 1983.
To put this in another context, 150 million Americans alive today, per the latest U.S. Census data, weren't alive the last time lawmakers on Capitol Hill found a way to work together to improve the program's long-term outlook. That's close to half of our country's population!
Why can't Congress find a solution to this mess?
If you're wondering why our elected officials haven't found a way to solve Social Security's imminent cash shortfall, look no further than political hubris.
Interestingly enough, a lack of solutions isn't the issue. There have been more than enough resolutions offered by politicians throughout the years that would completely offset Social Security's projected $13.2 trillion cash shortfall over the next 75 years. The problem is that the core solutions offered by Democrats and Republicans both work, which leaves no room for compromise in a highly partisan Congress.
Democrats have long believed that the best way to fix Social Security is to raise or eliminate the payroll tax cap on earned income. As of 2018, all earned income below $128,400 is subject to a 12.4% payroll tax. Any earnings above this amount is exempt. This means the well-to-do can escape taxation on some, or a majority of, their income. Lifting this cap or removing it entirely would require the wealthy to pay more into the system and, in the process, wouldn't impact more than 90% of the workforce who are already paying into Social Security on every dollar they earn.
Meanwhile, Republicans have favored the idea of raising the full retirement age -- i.e., the age at which you become eligible to receive 100% of your retirement benefit -- from a peak of age 67 in 2022 to perhaps as high as age 70. Doing so would require workers to wait longer to receive their full payout or accept a steeper reduction in their monthly payout if claiming early. Either way, it means a reduction in long-term benefits paid, saving the program money.
Each of these fixes works, and since that's the case, there's no incentive for either party to find common ground with the opposition. That's the sad truth and the reason why a Social Security fix is unlikely to be implemented anytime soon.