The Social Security deficit has been known for years, and while many proposals have been put up to try to address the problem or at least reduce it, Congress has not taken any action to put any of them into effect since they are consistently met with resistance from the opposing side.
The program has been in deficit since 2021, and trust funds that pay Social Security payouts may become bankrupt by 2035, making the situation increasingly serious. Benefits would still be paid, but they would be significantly reduced. This means that within ten years, benefits might be reduced by at least 17%.
However, there is still time to implement the required adjustments, and if we believe voters, there are certain policies that might be acceptable to both parties. According to a recent study by the University of Maryland’s Program for Public Consultation (PPC), there are a few widely accepted opinions that might be used to assist make up at least some of the gap.
1. Earn more than $400,000 and be liable for Social Security payroll taxes.
Employers and employees each contribute 6.2% of salaries to the payroll tax, which is the primary source of funding for Social Security. The yearly ceiling is $168,600 in 2024 and will rise to $172,000 in 2025. It was decided that income over this amount would not be subject to Social Security taxes because the program is not infinitely expandable.
In order to make the contributions more equitable for everyone, a proposal has been made to expand the payroll tax to wages beyond $400,000. This is because the people who earn the least have most, if not all, of their income taxed. 60% of the program’s funding shortfall might be covered if the plan were approved. According to the University of Maryland’s PPC study, 89% of Democrats and 87% of Republicans accept this plan, demonstrating its broad bipartisan support. Although it could be a good place to start, this does not imply that the policy would be put into effect.
2. Increase the payroll tax rate for Social Security to 6.5% over a six-year period.
The Social Security payroll tax, which is now set at 6.2% for both employers and employees, or a combined rate of 12.4%, is the subject of another proposal. By gradually raising this rate to 6.5% over a six-year period, 15% of the program’s budget shortfall would be filled. 87% of voters from both major political parties support this proposition, according to the University of Maryland’s PPC. Although there would be little effect on individuals, there might be a large long-term benefit to everyone.
3. By 2033, gradually increase the full retirement age to 68.
Employees must wait until full retirement age (FRA) in order to receive their whole main insurance amount (PIA), although they can start earning Social Security retirement benefits at age 62. The FRA is 67 for anyone born in 1960 or after, and if you claim benefits early, you will receive a less amount. The University of Maryland’s PPC indicates that 88% of Democrats and 91% of Republicans support raising FRA, which has been gradually increasing over the past few years, until it hits 68 by 2033. This would close 15% of the program’s financial gap.
4. Benefits for employees earning in the top 20% should be reduced.
A method that applies varying percentages to segments of an employee’s lifetime income split by two bend points is used to determine Social Security benefits. At the moment, the formula divides revenue as follows: 15% above the second bend point, 32% between the first and second bend points, and 90% below the first bend point. 11% of the program’s budget shortfall might be resolved by lowering the highest proportion for the top 20% of earners to 5%. According to the University of Maryland’s PPC, 93% of Democrats and 92% of Republicans approve this proposition, demonstrating its strong bipartisan support.