The Social Security shortfall has been announced for years, and while many remedies have been presented to try to address or at least mitigate the problem, Congress has made no moves to enact any of them since they are invariably met with hostility from the other side of the isle.
The situation is growing increasingly acute; the program has been in deficit since 2021, and trust funds that pay Social Security payouts may be insolvent by 2035. Although this would not cease the payment of benefits, it would significantly lower scheduled benefit payments, implying that benefits might be reduced by at least 17% within a decade.
However, there is still time to make the required reforms, and if voters are to be believed, several proposals have the potential to benefit both sides of the aisle. A recent study done by the University of Maryland’s Program for Public Consultation (PPC) indicated that there are certain widely supported positions that may be implemented to assist cover at least some of the shortfall.
Make income exceeding $400,000 subject to the Social Security payroll tax.
Social Security is primarily based on a payroll tax split evenly between individuals and employers, with each contributing 6.2% of wages up to an annual ceiling ($168,600 in 2024, increasing to $172,000 in 2025). Because the program cannot be scaled forever, it was decided that income above this amount would not be taxed for Social Security purposes.
Because this means that individuals with the lowest incomes have the majority, if not all, of their income taxed, a proposal to expand the payroll tax to earnings above $400,000 has been made to make payments more equitable across the board. If approved, the idea may cover 60% of the program’s funding shortfall.
According to a survey conducted by the University of Maryland’s PPC, 89% of Democrats and 87% of Republicans endorse this notion. This does not imply that the policy will be implemented, but it may be a good start.
Increase the Social Security payroll tax rate to 6.5% over six years.
Another idea concerns the Social Security payroll tax, which is set at 6.2% for both employees and employers, resulting in a combined rate of 12.4%. Raising this rate gradually to 6.5% over six years would close 15% of the program’s financial gap.
According to the University of Maryland’s PPC, this idea is supported by 87% of voters from both major political parties. Individual impacts would be small, but the long-term collective benefit could be enormous.
Gradually raise the full retirement age to 68 by 2033.
Workers can start receiving Social Security retirement benefits at age 62, but they must wait until they reach full retirement age (FRA) to get their full primary insurance amount (PIA). For people born in 1960 or later, the FRA is 67, thus claiming benefits early results in a lower payout.
Since FRA has been gradually raised in recent years, continuing to do so until it reaches 68 by 2033 would close 15% of the program’s financial gap and is supported by 88% of Democrats and 91% of Republicans, according to the University of Maryland’s Public Policy Centre.
Reduce benefits for workers with incomes in the top 20%.
Social Security benefits are determined using a formula that divides a worker’s lifetime income into two bend points and assigns different percentages to each portion. The method now distributes 90% of revenue below the first bend point, 32% between the first and second bend points, and 15% above the second bend point.
Reducing the highest percentage to 5% for the top 20% of earners might close 11% of the program’s financing gap. According to the University of Maryland’s Public Policy Centre, 93% of Democrats and 92% of Republicans approve this plan.
