This week’s announcement by the federal government regarding the solvency of Social Security was supposed to be comforting. Social Security’s retirement program will remain solvent until 2034 and Medicare until 2030 but Social Security’s disability benefits program is projected to run out of money in two years to pay full benefits.
Perhaps, in relation to how bad it could have been, that’s a positive trend, but it’s not puppy-dogs-and-rainbows happy. Frankly, it’s still frightening.
“As today’s reports make absolutely clear, Social Security and Medicare are fundamentally secure, and they will remain fundamentally secure in the years ahead,” said Treasury Secretary Jacob Lew. “The reports also remind us of something we all understand: We must reform these programs if we want to keep them sound for future generations.”
But reform won’t happen without a sense of urgency.
About 58 million people now receive Social Security benefits. Of those, 41 million are retired workers and dependents, 11 million are disabled workers and 6 million are survivors of deceased workers.
In 2013, Social Security paid $823 billion in benefits but collected only $747 billion in taxes.
Social Security has been in this deficit spending situation since 2010. According to the report, that trend will continue and accelerate in the coming years.
Figuring out how to fully fund the gigantic, multibillion-dollar Social Security program is certainly a difficult task that will require a variety of different actions.
However, much of the problem can be reduced by lifting or eliminating the amount of earnings subject to the Social Security tax. The taxable earnings are now capped at $117,000 a year.
Social Security is currently financed by a 15.3 percent tax on wages, half paid by employers the other by the employee. If the taxable earnings cap were to be lifted, it’s estimated about three-fourths of the projected shortfall would be eliminated.
Lifting the lid would not create a large burden for most Americans. Less than 20 percent of wage earners make over $100,000.
Of course, those having to pay more in Social Security taxes won’t be happy. Who can blame them? Nobody — except, perhaps, Warren Buffett — wants to pay a penny more in taxes.
Nevertheless, the reality is that if the system does not get a significant infusion of cash, benefits will have to be reduced.
Now that would be far more unpopular — and possibly economically devastating for the nation — than lifting the taxable earnings lid.
The longer Congress waits to raise or lift the cap on taxable wages, the larger the problem will become.
Now is the time to act.