Bolling: The Real Problem with Social Security

In his State of the Union address last night, President Biden accused “some Republicans” of wanting to cut Social Security and Medicare benefits for seniors. Of course, that is not true, but Biden knows that Social Security and Medicare can be a potent political issue, so why let the facts …. and the truth …. stand in the way of a good political argument?

But what are the facts regarding Social Security, and solvency of the Social Security Trust Fund? Simply put, more people are receiving benefits from Social Security than there are workers paying into the Social Security Trust Fund. As a result, current estimates are that the Social Security Trust Fund will be unable to meet its obligations in 2035.

Clearly, something must be done to sure up the Trust Fund so Social Security will remain available to current and future retirees. There are actually only three ways to do this – 1) you reduce benefits for current or future retirees, or 2) you push back the age at which recipients become fully vested in these benefits, or 3) you increase the amount of money going into the Trust Fund, and that means higher social security taxes for workers and their employers.

(Yes, I know that some would like to give younger workers the option of privatizing their social security accounts, believing they could do better than the government in investing this money over time, but that is not going to happen. There simply aren’t enough people in Congress to support such a proposal, and it would quickly become a divisive political issue that would be devastating to anyone openly supporting it.)

Frankly, no one wants to reduce benefits for current or future retirees, and very few people are open to pushing back the age for full benefit vesting, because both of these solutions would pose serious political risks for anyone proposing such changes. This leaves the issue of taxes.

Currently, workers pay 6.2% of their earnings into the Social Security Trust Fund, and their employer contributes another 6.2%, making the total contribution for each employee 12.4% of earnings. (BTW, self-employed persons have to contribute the full 12.4% on their own.)

However, these contributions only apply to the first $160,200 of an employee’s earnings. Any earnings over this amount are not taxed.

One Senator – Senator Joe Manchin from West Virginia, who is actually a Democrat, not a Republican – has proposed increasing the $160,200 cap, which would generate more funding for the Social Security Trust Fund and extend the life of the fund. This may well be the least offensive way to solve this problem because it would not impact most workers. (Only about 7% of U.S. workers earn more than $160,200/year.)

These same challenges currently face Medicare’s Hospital Insurance Trust Fund, which could be unable to fully pay its bills as early as 2026-2028 unless steps are taken to sure up that fund.

Here’s the bottom line. No one wants to adversely impact anyone who is currently receiving Social Security or Medicare benefits, but doing nothing to sure up the solvency of these trust funds is not an answer. That would eventually harm everyone.

There are no easy answers, and there are no pain free answers, but this issue deserves more serious policy discussion and less political hyperbole like Biden spewed forth last night.

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