It's probably something you never thought you'd contend with in your lifetime, but America's most important social program, Social Security, is in trouble.

Social Security is 15 years away from kissing its asset reserves goodbye

This past June, the Social Security Board of Trustees released its newest annual report detailing the short-term (10-year) and long-term (75-year) outlook for the program. Arguably the biggest change in the recent forecast from previous years is that Social Security was expected to expend more than it collects in 2018 for the first time since 1982. Mind you, the net cash outflow created from this event will be very small compared to the nearly $2.9 trillion currently in Social Security's asset reserves. The problem is that this net cash outflow is indicative of the payout schedule being unsustainable.

A Social Security card standing up on a table, with the name and number blurred out.

Image source: Getty Images.

According to the report, as ongoing demographic changes weigh on the program, it'll quickly diminish its excess cash. By the year 2034, Social Security's asset reserves are projected to be completely exhausted. Should this happen, Social Security wouldn't be bankrupt or insolvent. However, it would pave the way for an across-the-board cut in benefits of up to 21% in order to sustain payouts through the year 2092, without the need for any further cuts. Considering that more than three out of five retired workers is reliant on Social Security for at least half of their monthly income, such a cut could prove devastating.

The only resolution to the estimated $13.2 trillion shortfall Social Security is facing between 2034 and 2092 is to either raise additional revenue, cut expenditures, or implement some combination of the two. And the only way that's happening is if Congress tackles the problem.

Just how would Democrats and Republicans fix Social Security? The honest answer is very differently. Let's take a closer look at the core proposals from America's prevailing political parties.

The Democrats' plan

What you need to know about Democrats on Capitol Hill is that they overwhelmingly prefer tackling Social Security's funding shortfall from the revenue side of the equation. More specifically, Democrats have long proposed increasing or eliminating the maximum taxable earnings cap associated with the 12.4% payroll tax on earned income.

Two Social Security cards lying atop a W2 tax form, highlighting payroll taxes paid.

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In 2019, the payroll tax applies to earned income between $0.01 and $132,900. Any earnings above this amount are exempted, with the Social Security Administration finding that $1.2 trillion in earnings escaped the payroll tax in 2016. Essentially, more than 90% of all workers are paying into the program with every cent they earn. Meanwhile, well-to-do workers are being exempted on some, or perhaps a large portion, of their earned income.

Democrats would see this end by either increasing the cap (the $132,900 figure), which currently rises in step with the National Average Wage Index, or eliminating this cap entirely, thus requiring that all earned income be hit with the 12.4% payroll tax. Doing so should completely cover the estimated $13.2 trillion shortfall through 2092.

However, Democrats would also like to see benefits expanded for the elderly and poor. They'd accomplish this by changing Social Security's inflationary measure from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to the Consumer Price Index for the Elderly (CPI-E). In simple terms, moving from the CPI-W to the CPI-E would more accurately reflect the housing and medical-care costs that seniors aged 62 and over are facing. This should result in higher annual cost-of-living adjustments, which is important given that seniors have seen the purchasing power of their Social Security dollars decline by 34% since 2000.

The Republicans' plan

By comparison, Republicans in Washington, D.C., would prefer to tackle Social Security's shortcomings by reducing the long-term expenditures tied to the program. This would be accomplished by gradually increasing the full retirement age associated with Social Security. Your full retirement age is the age at which you become eligible to receive your full benefit, as determined by your birth year.

A half-emptied hourglass on a table next to a calendar.

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This year, the full retirement age increases by two months to 66 years and six months for those folks born in 1957. And it'll continue to rise by two months per year until it hits its peak in 2022 at 67 years for those born in 1960 or later. However, the full retirement age has climbed by just two years in Social Security's 83 years of existence. As you can imagine, longevity has increased much more than that.

Republican proposals have called for a gradual increase of the full retirement age to as high as 70. This would require that future generations of workers wait longer to receive their full payout or that they be willing to accept a steeper reduction in their monthly payout if claiming early. Either way, it would reduce the long-term expenditures of the program, thereby erasing the estimated cash shortfall. It's worth noting that this plan does not impact people who are already receiving benefits or are very close to claiming benefits.

Like Democrats, the GOP also dislikes the CPI-W as the program's inflationary tether. Unlike their political opposition, Republicans want to see the CPI-W replaced with the Chained CPI. The Chained CPI takes into account the idea of substitution bias, which is the act of trading down to a cheaper (but similar) good or service when another gets too pricey. If ground beef goes up in price, it's the idea of buying chicken or pork instead. The Chained CPI, which is already tethered to federal income tax brackets, would result in lower annual cost-of-living adjustments, thereby saving the program additional money over the long run.

A bipartisan fix is the only smart way

Thus, we have the crux of the problem: both solutions work. Since both solutions fix the problem, neither party believes that compromising on a middle-ground solution makes sense.

Two businessmen in suits shaking hands, as if in agreement.

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But the thing is, we'll need a bipartisan solution to put Social Security on the best path to long-term success. Well, that and we're going to need 60 votes of support in the Senate to pass any Social Security amendments, which means the need for bipartisan cooperation.

There's little doubt that an increase in the taxable earnings cap is going to be needed in order to generate more revenue for Social Security. The problem is that as income inequality has grown, so has the amount of earnings escaping the payroll tax. Increasing the cap would help claw back some of the earned income that's escaped.

Raising the full retirement age is needed, too. Even if the rich pay more into the program, it'll all be for naught soon enough if longevity continues to increase. Social Security was designed in the mid-1930s as a short-term financial foundation rather than one that would make payments for two-plus decades. Raising the full retirement age would help combat lengthening life expectancies.

One solution without the other simply won't fix Social Security's problems for any significant length of time.