Millions of Americans rely on Social Security to pay their living expenses during their senior years. But there's a big problem: In the coming years, Social Security is expected to owe more money in benefits than it collects in revenue as baby boomers exit the workforce and too few people replace them.
Social Security can tap its trust funds to make up for a revenue shortfall, but those cash reserves will only last so long. The Social Security Trustees' most recent estimates state that the program's trust funds could run out of money as soon as 2035, at which point only 79% of benefits will be payable. But that projection was made a year ago, without accounting for the financial impact of the coronavirus pandemic.
Social Security's primary revenue source is payroll taxes. But given that unemployment has been rampant over the past year, it's likely that the program took in a much lower level of payroll tax revenue in 2020 than its Trustees were counting on when they made their prediction a year ago. That means Social Security's trust funds could end up running out of money much sooner than 2035.
Lawmakers are aware of this problem, and now, it looks like some are stepping up to address it. Republican Senator Mitt Romney reintroduced a bill last week called the TRUST (Time to Rescue United States' Trusts) Act, which aims to address the revenue shortfalls faced by Social Security and other federal programs that rely on dwindling trust funds. The bill would create bipartisan rescue committees that would be tasked with implementing changes to extend the programs' long-term solvencies.
But could such a bill actually help Social Security? Or it is too late to stop the bleeding?
Drastic changes could be in the works
The good news is that it's certainly not too late for lawmakers to step in and implement changes that could prevent future Social Security benefit cuts. But the longer lawmakers wait to take action, the more drastic those rescue measures will have to be.
President Biden, for example, has already proposed reinstating Social Security taxes on workers once their wages exceed $400,000. Right now, those taxes only apply to wages of up to $142,800. But lawmakers, in trying to save Social Security, may seek to impose extra Social Security taxes at a lower earnings threshold or increase the Social Security tax rate on wages so that even lower earners lose a larger chunk of their income to payroll taxes.
In fact, while the aforementioned bill may seem like a good thing in theory, some advocates have expressed concern about rising taxes or benefit decreases in the future. The goal of the bill, after all, is to ensure that Social Security remains solvent. Lowering benefits could solve that goal just as easily as raising taxes.
Ultimately, it's too soon to know what will come of the TRUST Act and, if implemented, how good a job it will do of addressing Social Security's glaring problems. But one thing's for sure: If lawmakers sit back and do nothing, we could have a major crisis on our hands if benefits are cut and millions of seniors see their retirement income plummet overnight.