Social Security is only secure if more money is coming in than is being paid out. That’s been the case until now.
Unfortunately, the Baby Boomers are heading into retirement, which means the cash flow will be shifting. If Congress fails to make any changes to Social Security the current surplus will be gone by 2033, according to research done by The Associated Press for its recent series — published in the U-B — about Social Security.
This is actually a positive take on the situation. The government has borrowed (some like to use the term “raided”) cash from the Social Security fund leaving IOUs in its place. The AP scenario only holds up if those IOUs are paid.
Nevertheless, it’s clear hard choices are necessary to keep Social Security solvent even if the debt is repaid. Unfortunately, Republicans and Democrats in Congress don’t want to make difficult and unpopular choices and are dithering — looking for the right time to take a stand that won’t hurt them politically.
We, as a nation, have no more time. The longer the politicians wring their hands, the deeper the problem becomes.
A variety of options are being considered — from raising taxes to decreasing benefits to increasing the retirement age.
We see tax increases as the best of the unpleasant options.
Social Security is financed by a 12.4 percent tax on wages, half paid by employers the other by the employee. But the tax only applies to first $110,000 of a worker’s wage — which, for most of us, means all our wages. In addition, the tax rate was reduced to 4.2 percent from 6.2 percent for employees through 2012.
About three-fourths of the shortfall — 72 percent — could be eliminated if the employee tax was returned to 6.2 percent next year and the entire 12.4 percent was applied to wages beyond $110,000.
We have opposed tax hikes in the midst of this recession for fear it would slow economic growth, but we now see this boost as essential to keeping Social Security solvent. The recession seems to be nearing an end and, most importantly, time is critical. If this action was imposed two years ago it would have eliminated 99 percent of the shortfall.
If the payroll tax was increased 0.1 percentage point a year for 20 years until it reached 14.4 percent this, by itself, would eliminate 53 percent of the shortfall, according to AP estimates. That rate increase seems too high. But since that much money would not be needed if all wages were taxed, a much smaller rate increase could be imposed.
Congress could also tinker slightly with the retirement age.
We don’t see this as the final answer, but a good place to start this needed quest for a solution.
But whatever is decided, Congress must impose all Social Security taxes and restrictions on its members. Sure, it would be purely symbolic in terms of eliminating the deficit, yet it would make the tough choices easier for the American people tolerate.