It is well known that the Social Security program is not in great shape financially. By 2035, the Old Age, Survivors, and Disability Insurance (OASDI) trust fund, which funds Social Security benefits and benefits for disabled workers and their families, will be depleted.
At that point, the payroll taxes that fund Social Security are only expected to be able to cover 77% of scheduled retiree benefits, according to the Social Security Administration (SSA). With only a little more than a decade until this monumental event, it's going to be increasingly difficult for politicians to continue to punt on this very divisive and partisan issue.
Lawmakers will have to do something to address the shortfalls Social Security is facing. Here are three proposals to increase funding for the program and one plan to cut benefits.
Three proposals to further fund the program
One bill that was proposed in July by U.S. Sen. Mazie Hirono (D-Hawaii) and U.S. House of Representatives member Ted Deutch (D-Fla.), the Protecting and Preserving Social Security Act, was reintroduced after initially being proposed in 2019.
The bill proposes to push out the depletion of the OASDI until 2052 and reduce the federal budget deficit by $12.3 trillion over the next 75 years. A big way the bill plans to do this is by phasing out the benefit base, or the maximum amount of earnings people pay Social Security taxes on. Currently, that limit is $147,000, although it will rise to $160,200 next year.
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The bill also aims to improve the "fairness" of the Social Security program by having the annual cost of living adjustment (COLA) calculated in a way that more accurately considers the expenses that are more common in retirees' lives. This would increase annual COLA adjustments.
Another bill proposed this year to further fund the program is the Social Security Expansion Act, which is being sponsored by Sen. Bernie Sanders (I-Vt.), Sen. Elizabeth Warren (D-Mass.), and House Rep. Peter DeFazio (D-Ore.).
The bill proposes to extend the solvency of the trust funds by 75 years, similar to Hirono and Deutsch's bill, by raising the benefit base to $250,000. The bill also proposes to raise Social Security benefits by $200 per month and to require individual millionaires and billionaires to pay a 12.4% tax rate, up from the current 6.2% individual rate and equivalent to Social Security taxes that self-employed workers currently pay.
A third bill is called Social Security 2100: A Sacred Trust. The bill is authored by John Larson (D-Conn.), chairman of the House Ways and Means Social Security Subcommittee. The bill also has 200 co-sponsors in the House.
Similar to the two bills above, Larson's bill would increase the benefit base on which Social Security taxes are paid to $400,000. The bill would increase average benefits by 2% as well. However, many of the proposed benefit adjustments in Larson's bill are only temporary and will last for five years, although Larson has said the intent is to make them permanent eventually.
One plan to cut benefits
Although it has not formally crafted a bill, the Republican Study Committee (RSC), which represents 157 out of 211 House Republicans, has suggested several cuts to Social Security in its proposed fiscal year 2023 budget.
While this is not the formal budget going into place, it represents budget priorities of a large swath of the Republican Party. The Republicans could hold up attempts by Congress to raise the debt ceiling, which Congress regularly needs to pass in order to keep funding the government, by pushing for policy changes like this in the budget.
The biggest change the RSC would like to make is to increase the full retirement age (FRA) from 67 to 70. The FRA is the age at which retirees can collect full benefits from Social Security (retirees can start collecting Social Security as early as the age of 62, but it requires taking reduced benefits).
Coming to a head
Proposals to solve the financial crunch the Social Security program is currently facing have never made it very far in Congress due to the divisiveness of the issue. But with the OASDI trust fund expected to run dry in about 12 years, Congress is running out of time.
The two main ways to fix a financial budgeting issue are usually to raise taxes or cut funding, so while there is wide disagreement over the best plan, expect to see a range of proposals attempting to do one of these two things. Eventually, Washington will have to act.
