Solving Social Security's Solvency Stalemate
We all know Social Security has a funding problem. What most of us don’t know is how much of it is real, and how much is political theater and orchestrated pressure campaigns. Here’s a novel idea I haven’t heard anyone talk about, and I would like to start a conversation:
Raise the share that companies must pay, but keep the employees’ share the same.
Funding for Social Security is derived primarily from payroll taxes, income taxes on benefits, and modest interest from investment of the funds. Payroll taxes are split 50/50 between employees and employers, who each pay 6.2% of wages up to an annual limit which is currently $184,500. A portion of Social Security benefits is taxable as income, so the net effective payout is reduced, and more than half of those taxes are returned to the Social Security Trust Fund, while the balance goes to Medicare.
I am not at all in favor of making all wages subject to the SS tax, unless we’re going to increase the payback to those who contributed more (which would defeat the purpose). I’m also not in favor of eliminating inflationary increases, reducing benefits, or otherwise tinkering with what people are depending on. However, I am open to changing the eligibility dates to align with changes in life expectancy (i.e., the payout period).
From a quick search online, we’d currently need to increase the payroll tax by 4.42% overall to achieve 75 year solvency. If that increase was paid by the employers, who’ve been reducing many other employee benefits over the years, we might solve the problem. Obviously, companies won’t be happy with that, but nobody wants to pay higher taxes. We may need to make an exception for self-employed individuals, who are responsible for the total contribution.
I don’t know what the impact of an increase in tax on companies would be, in terms of the cost to companies and their profitability, and in fact, it would probably have more of a negative impact on companies with low salaries. Perhaps to address that, the companies’ share might be higher for companies with higher compensation levels. It seems to me that many companies have benefited from not having to provide pensions, although they’ve substituted them somewhat with contributions to 401k plans and stock plans, and may be able to afford to take better care of their employees after retirement.
If such a solution were deemed viable, it is something that should be implemented as soon as possible, but ramped up over several years to avoid major shocks. Delaying just increases the gap that would need to be made up.
What do you think? I just sent this suggestion to one of my Senators who’s been responsive in other matters, and am looking forward to his reply. I didn’t bother reaching out to my Congressman, as he’s as useless as wings on a worm.
We'll agree to disagree on removing the income cap Bob, and I have no problem with leaving the payout schedule as it is because presumably anyone whose income subjects them to the higher taxes will have sufficient assets to make their SocSec income supplemental only or, income cases superfluous.
That said, I like your idea of increasing the employer contribution while maintaining the employee portion as it is. Anything that will help balance the books while observing your stipulations about keeping retirees whole is worth a look.
OK. I don't have time to do the research, but I've always thought that the money payroll taxes that we paid as workers to the Social Security Administration was OUR MONEY! Yes, it goes into a pretty large "pool," but what we paid into it over our years of paid employment was supposed to be available to us proportionately when we retire. Has that changed? I sure hope not!
I live on my social security funds exclusively! And I'm lucky enough to have applied for a housing voucher years ago and now have it to pay most of the egregious rent charged in the LOW-INCOME SENIOR APARTMENT where I live, after having to move from the coast where I was born and lived from 1940 to 2018! I'm a "fish out of water" living inland, but at least I'm still living! And I'm very appreciative of the assistance I'm getting.
And I'm very worried about our young folks, who can't afford their own apartment even though they may have a college degree and a decent job. It's time for a "re-set" in any of several possible scenarios which I will not delineate!