Congress has put off making tough decisions on Social Security for years, but legislation is coming soon and it looks like taxpayers will pay for it.
That’s because a small but growing group of lawmakers have signaled their willingness to shore up Social Security’s finances through increased tax revenue. This group includes some Republicans who traditionally view tax increases as anathema.
For decades, Social Security was considered the “third rail” of American politics, and any proposal to raise taxes or cut benefits quickly sparked backlash.
But with retirees facing significantly smaller checks, the political calculus could change. Projections earlier this year showed that the Social Security trust fund would run out of money sooner than previously thought Benefits would be cut by 22% by 2032 unless adjustments are made.
Payroll tax revenue was insufficient to fund ongoing benefits, and the trust fund covers the shortfall. However, once it runs out, Social Security can only distribute what is received.
Currently, employees and employers each pay a 6.2% tax on wages up to $184,500 per year. Additional wages above this cap are not subject to tax, meaning the wealthy pay a relatively small portion of their income to support Social Security compared to lower-income workers.
“We have too many people saying, ‘Well, we have to stay within the current income level or the current tax rate,'” said Rep. Tom Cole, R-Okla., told that Washington Post earlier this month. “I’m willing to look at the tax rate. I’m willing to increase the amount of income through taxes.”
The influential chairman of the House Budget Committee suggested that Social Security math overshadows politics.
“And believe me, if the company goes bankrupt you will have a much bigger problem than keeping it whole because people will feel cheated,” he added.
Rep. Lloyd K. Smucker of Pennsylvania suggested this month that raising the income cap could be part of the solution to the trust fund’s insolvency.
Like Cole’s, his voice carries additional weight because he is a leading candidate to be the top Republican on the House Budget Committee in the next Congress.
“You probably need to change something in payroll because half the money is paid into the system,” Smucker told reporters. accordingly appeal.
He added that lawmakers cannot allow benefit cuts to occur within six years, “and the only way to address that is to look seriously and realistically at the math problem and demographics.”
Another Republican, Sen. Bernie Moreno of Ohio, announced a plan to raise more revenue through payroll taxes New York Times op ed He wrote to Massachusetts Democratic Senator Elizabeth Warren in June.
The senators pointed out that the vast majority of Americans earn less than the $184,500 cap, meaning Social Security taxes are levied on 100% of their income, while top earners pay only a fraction of their income.
“Why should a middle-class nurse pay a larger portion of her salary than a wealthy corporate lawyer?” they wrote. “This is doubly unfair in an economy where the wages of top earners have over time been well above those of the average worker.”
Moreno and Warren, citing a Peter G. Peterson Foundation Report It is estimated that such a change would bring about $3 trillion to the program over ten years.
Josh Turek, a Democratic candidate for the U.S. Senate seat in Iowa, has also called for eliminating the tax cap, saying the wealthy “pay Social Security taxes in the first few minutes of the year, but we have teachers … who pay all year long.”
According to the Committee for a Responsible Federal Budget, lifting the cap would result in sufficient revenue to cover more than half of the Social Security funding gap, but not all of the funding gap.
So either more revenue is needed, or services need to be cut in some way – and no one on Capitol Hill is talking about cuts.
Sen. Sheldon Whitehouse, D-R.I., and Rep. Brendan Boyle, D-Pa., have offered a plan to raise more revenue as well. Instead of lifting the cap, however, the income tax limit would be raised to $400,000 and capital gains would also be subject to the levy.
Another proposal from Sens. Bill Cassidy, R-La., and Tim Kaine, D-Va., would maintain current benefits and instead avoid continued pain for recipients or taxpayers rely on the stock market– along with a mountain of new debt.
Their idea is for the federal government to borrow $1.5 trillion for a mutual fund filled with stocks and other risky assets that will accumulate profits for 75 years and provide better returns than Treasury bonds.
At the same time, the Cassidy-Kaine plan would require an additional $25.1 trillion in borrowing to close the gap between Social Security revenues and benefits over those 75 years. The income from the investment fund would then pay off a total of $26.6 trillion in new loans.
But Boston College’s Center for Retirement Research ran some simulations recently, noting that the senators’ plan is unlikely to work. While the historical average of stock returns could provide more than enough income – assuming it stays that way over the next few decades – the market doesn’t move in a straight line.
“However, after accounting for the volatility of stock returns, the results show that the gamble does not always pay off,” write authors Anqi Chen, Alicia Munnell and Jean-Pierre Aubry wrote in a report.