Social Security benefit cuts are gathering political attention again. Increases in the age for receiving full retirement benefits are a specific cut that a large number of members of Congress have proposed. Congress will indeed adjust Social Security’s finances in the coming years to make sure the program can pay all of its promised benefits. Starting those adjustments with benefit cuts, especially regressive ones such as increasing the retirement age that hurt lower-income earners more than higher-income earners, is exactly the wrong approach, however. Raising additional revenues from high-income earners should be a preferred policy approach that strengthens rather than weakens the program.
Social Security’s finances are generally solid. According to the latest report from its trustees, the program can pay all promised benefits without changes to Social Security until 2033. Benefit payments will exceed total income starting in 2034. Payroll tax income will then cover 80% of promised benefits, meaning that beneficiaries would receive benefit cuts of 20% in 2034 and beyond. Payroll taxes would need to immediately rise by 3.44 percentage points to 15.85% to cover the expected long-term shortfall. Importantly, the costs of the program do not outpace the economy in the future. According to the Social Security trustees, Social Security will cost 5.95% of gross domestic product (GDP) in 2034, the first year when total income falls short of promised benefits, and 5.99% in 2100. The bottom line is that Social Security can pay for the overwhelming majority of promised benefits without any changes. And those changes, while necessary, are manageable, especially since they don’t grow uncontrollably in the future.
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