For years, current and future beneficiaries alike have worried about Social Security's solvency issues. As of now, the program is facing a major funding shortfall that could result in substantial benefit cuts across the board.
Meanwhile, President Biden recently unveiled a proposed budget for 2023 that includes $14.8 billion for Social Security. That's roughly a 14% increase from funding levels allocated in 2021. But while that increase might help improve the program's services, it may not do much, or anything, to prevent benefit cuts down the line.
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Better service for seniors
Last year, Biden sought to increase Social Security funding to provide better service to seniors. Going into 2023, he's looking to do the same.
Under his proposed 2023 budget, the extra money going into Social Security will be allocated to improving the agency's services. Specifically, the goal would be to beef up field offices and add staff to cut down on customer service wait times and help more people access the help they need. Some funds would also go toward Social Security fraud prevention.
Clearly, these are important things. But they fail to address a bigger issue -- that Social Security is rapidly reaching a point where benefit cuts may be a real possibility.
In the coming years, Social Security is expected to owe more money in benefits than it collects in revenue. The reason? The program's primary revenue source is payroll taxes, and as baby boomers continue to exit the labor force, that revenue source is apt to diminish (especially with an inadequate number of replacement workers coming in).
Social Security currently has trust funds it can tap to address a revenue shortfall. But once those trust funds run out of money, benefit cuts are most certainly on the table.
Meanwhile, those trust funds could be depleted in a little over a decade based on recent projections. That makes benefit cuts not a far-off scenario, but a relatively near-term one.
Pumping more money into Social Security
Lawmakers have played around with different options for getting Social Security the revenue it needs. One common proposal is to raise or even eliminate the wage cap that applies to Social Security taxes.
Right now, earnings over $147,000 aren't taxed for Social Security purposes. Setting a higher threshold could help the program shore up its finances.
The problem with that proposal, though, is that Social Security pays out a maximum monthly benefit that would, conceivably, have to increase if workers start paying taxes on more of their income. And that could create a scenario where a higher wage cap is effectively a wash.
There are other potential solutions being floated around that could serve the very important purpose of preventing benefit cuts. But unfortunately, an uptick in funding for the program in 2023 isn't likely to solve that problem. And current and future beneficiaries alike may need to brace for the possibility that benefits will shrink across the board at some point in time -- specifically, at a time that isn't actually so far away.
