Social Security has been in serious financial trouble since well before the COVID-19 pandemic began. Earlier this year, the program's Trustees announced that if lawmakers don't intervene with a fix, Social Security will likely need to cut benefits as early as 2035, the date initially projected for its trust funds to run out of money.
But a recent decision by President Trump could make those benefit cuts happen sooner. Earlier this month, the president signed an executive order that seeks to defer employee payroll taxes from Sept. 1 through the end of 2020. The purpose behind that order? To provide relief during the pandemic by giving workers larger paychecks.
To be clear, the order doesn't exempt workers from paying those taxes entirely; it simply gives them more time to fork over that money. What's more disturbing, however, is that the president has stated that if he's reelected, he'll seek to permanently forgive those four months of payroll taxes. And if that happens, Social Security may have to implement benefit cuts well ahead of 2035.
But despite the panic that the president's executive order has caused, the reality is that forgiving four months of payroll taxes won't be enough to destroy Social Security. And that should give current and future beneficiaries some peace of mind.
Social Security won't disappear
Right now, Social Security's worst-case scenario is reduced benefits. That's a far cry from having the program go away completely.
Even if Social Security does lose out on several months' worth of payroll tax revenue, all that will do is move up the date at which its trust funds run out of money and benefits are slashed accordingly. And that assumes lawmakers don't come up with a way to prevent that from happening.
There are several proposals in the works that are designed to save Social Security from financial ruin and prevent benefits from being reduced. One idea, for example, is to raise the wage cap that applies to Social Security taxes. Right now, workers only pay taxes on their first $137,700 of earnings. That figure changes from year to year, but raising it to a much higher threshold would certainly be one way to pump more revenue into Social Security.
Another idea is to raise full retirement age, or the age at which recipients are allowed to collect their full monthly benefit based on their earnings history. Right now, those born in 1960 or later reach full retirement age at 67, but since life expectancies have increased, there's talk of raising that age to 68 or even later, which would put less of a strain on Social Security's resources while keeping people in the workforce longer to generate added payroll tax revenue for the program.
Of course, these proposals have their drawbacks, and they're just a couple of suggestions floating around. The point is that while depriving Social Security of four months' worth of payroll tax revenue would be devastating to the program's finances, it also wouldn't destroy it completely. And that's one thing the public can take comfort in.