Due to a budget deficit, Social Security may not be able to provide retired Americans with their full payments in around ten years. (Photo : by VALERIE MACON/AFP via Getty Images)
Due to a budget deficit, Social Security may not be able to provide retired Americans with their full payments in around ten years.
Two trust funds are used by the program to finance monthly benefit payments to retirees, their spouses, and the surviving employees of dead workers. The other trust fund is for individuals with disabilities.
In the Social Security trustees' annual report, which was made public on May 6, it is predicted that the combined trust funds will run out by 2035. It is anticipated that the retirement trust fund alone for Social Security would deplete in 2033. After then, seniors' Social Security benefits are anticipated to be around 80% of what they would have been otherwise.
While many Americans are concerned about the future of the program, others, such as former Labor Secretary Robert Reich, argue that the wealthiest are not contributing fairly to Social Security payroll taxes. Reich and others suggest that in order to address the program's financial problems, the government "scrap" the Social Security "tax cap."
Employers and workers contribute a specific payroll tax, which is the main source of funding for Social Security.
The combined trust fund of the program would last longer if the Social Security tax ceiling were raised or removed, which would allow pensioners to collect their full benefits for longer than is now projected. However, money would ultimately run out of the trust fund.
Because it is bringing in less money than it is disbursing in payouts, Social Security is going to have long-term financial difficulties. According to the Peter G. Peterson Foundation, this is because, as the country's population ages and more Baby Boomers retire, there are fewer workers paying into the program for every individual receiving Social Security payments than in previous years.
In such a case, the program will have to use trust fund reserves to partially finance monthly benefit payments. However, Social Security has long warned that the trust funds will soon run out of cash reserves, meaning the agency won't have enough funding to provide full payments, unless action from Congress.
While raising or removing Social Security's "tax cap" would increase income and assist address the financing gap, they wouldn't completely eliminate it.
The primary source of funding for Social Security is a specific payroll tax that is withheld from each paycheck you receive. Payroll taxes for Social Security are also paid by employers.
However, as time has gone on, the portion of workers' income that is due to Social Security payroll taxes has decreased, according to the impartial Congressional Budget Office (CBO), "because earnings for the highest-paid workers have grown faster than average earnings."
In 1983, Social Security payroll taxes applied to ninety percent of all wages. The CBO estimates that in 2020, that percentage will drop to 83%.
The program has to bring in more money in order to continue providing benefits at the present rate.
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