Social Security has undeniably been a controversial political issue over the years, as the program has struggled -- whether it's retiree benefits losing purchasing power, or the program running into a heap of financial trouble.
Either way, the issue is now front and center in American politics and should remain that way as the country gears up for the 2024 presidential election cycle. Here are two key takeaways from Congress on the future of Social Security.
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1. Lawmakers agree on one thing
Lawmakers in Washington don't agree on much these days, whether we are talking about Democrats and Republicans, or even politicians within the same party. But I think most politicians understand that the Social Security program is currently heading in the wrong direction.
That's because Social Security is undisputedly struggling financially. Currently, the payroll taxes the government collects aren't enough to fully fund scheduled benefits for the 66 million retirees in the program. So, the program has had to dip into its reserve fund, the Old Age and Survivor's Insurance (OASI) Trust Fund.
At the current rate, the Social Security Board of Trustees estimates the OASI Fund will run out of money by 2033, at which point payroll taxes collected for the program will only be enough to cover 77% of scheduled benefits. However, at this point, Congress would likely dip into or combine the assets of the OASI with that of the Disability Insurance (DI) Fund, which pays benefits to disabled workers.
The DI Fund is much smaller than the OASI Fund and would get depleted pretty quickly if used for Social Security retiree benefits. If the assets of both trust funds were combined, the program would be able to pay out 80% of scheduled benefits by 2034.
This would still be a big problem because many retirees rely on Social Security as their primary source of income. So losing 20% of benefits would likely lead to a range of health and poverty issues among retirees.
2. Lawmakers are divided on a solution
Although lawmakers on both sides of the aisle agree there needs to be a change, unsurprisingly, their solutions are on opposite sides of the spectrum.
The main solutions currently being proposed by lawmakers are to raise taxes or essentially cut benefits. Democrats tend to favor higher taxes to solve a lot of issues, while Republicans favor spending cuts. Crossing party lines on this matter could turn into a political nightmare for a politician.
Social Security is funded by payroll taxes but only up to a certain threshold of a person's annual wages, a number known as the benefit base. This year's benefit base is $160,200. Democrats want to increase this number to $250,000, $400,000, or more. Meanwhile, some Republican groups have proposed raising the age that retirees can claim their fully entitled Social Security benefits from 67 to 69, which would essentially cut benefits.
It's no secret the Social Security program is in a precarious place. But lawmakers have largely punted on the issue, given how divided Congress has been and how difficult it would be to pass a bill.
But with just 10 years until scheduled benefits will be cut, lawmakers are going to need to act sooner than later. Many experts still expect they will, given how critical Social Security is to so many Americans.
