Fixing the Deficit in the Social Security Program: Strategies for Congress
Dr. Gopi Shah Goda, Director of the Retirement Security Project and a senior fellow at the Brookings Institution, has emphasized the importance of protecting those populations that rely on Social Security the most. As the Social Security Trust Fund is projected to deplete by 2034, she expresses concern about Congress potentially borrowing money from general revenues to address the shortfall, as it would make the financial issues of the program even harder to address in the future.
Experts and the Social Security Trustees recommend acting sooner rather than later to allow workers and beneficiaries time to adapt to changes and to avoid more drastic measures later. The consensus points towards a multi-faceted approach involving payroll tax increases, raising taxable earnings limits, adjusting retirement age, and benefit formula changes as the most feasible policy solutions to close the Social Security shortfall.
Key proposals include raising the payroll tax rate from the current 12.4% on wages (split equally between employees and employers), potentially increasing it by about 3.8 to 4 percentage points, which would raise the rate to roughly 16%, to fully fund benefits over the next 75 years. Another proposal is to increase the maximum taxable earnings cap, currently $176,100 in 2025, so higher earners pay payroll taxes on more of their income.
Modifying the benefits formula is also a potential solution, potentially reducing future benefits or changing how cost-of-living adjustments are calculated. Taxing a higher share of benefits for higher-income recipients is another way to increase revenue from wealthier beneficiaries.
In addition, implementing a combination of the above approaches rather than any single change is suggested to spread impact and improve feasibility. Gopi Shah Goda also suggests increasing the progressivity in the Social Security program by adjusting the benefit formula or changing the rate of growth in benefits differentially by income.
Social Security benefits are expected to start declining by 2034 due to more people drawing benefits than paying into the program. However, it's worth noting that even today, more money is being paid out in benefits than is being taken in, but reserves built up over the years are helping to pay current benefits.
Gopi Shah Goda notes that some of the financing shortfall in the Social Security program is due to higher-income beneficiaries living longer and receiving benefits for longer. To address this, she mentions a proposal called progressive price indexing, which adjusts benefits based on income to address the financing shortfall in the Social Security program.
It's important to note that overpayments in the Social Security program, sometimes called fraudulent payments, amount to only 3% of the shortfall. The Social Security program is an efficient one, with administrative costs only 0.5% of the money going out. Social Security benefits are a key contributor for sustainable income later in life for many people.
In 2034, the Social Security Trustees predict that they will only be able to cover 81% of promised benefits because revenue will be insufficient. To address the financial challenges of the Social Security program, either revenue must be increased or benefits reduced. Gopi Shah Goda does not recommend any specific policy changes in the interview, but mentions the proposal of progressive price indexing as a potential solution to address the financing shortfall in the Social Security program.
- The conversation surrounding the Social Security Trust Fund's anticipated depletion in 2034 has led to discussions about financing within the federal workforce, politics, and general-news, with experts suggesting a blend of payroll tax increases, retirement age adjustments, benefit formula changes, and maximum taxable earnings cap increases as feasible policy solutions.
- Progressive price indexing, a proposal to adjust Social Security benefits based on income, could potentially help address the financing shortfall in the federal workforce and mitigate the impact of higher-income beneficiaries living longer and receiving benefits for extended periods.
