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Social security is, for better or for worse, the most important social program of our country. In addition to providing a monthly allowance to more than 62 million people, it is responsible for keeping about 22.1 million beneficiaries above the federal poverty line, according to the Center's data on fiscal and political priorities. Without social security, we are currently facing a serious problem of poverty among the elderly.
But as long as social security does for current and previous American generations, it also faces what could be the biggest obstacle of its 83 years of existence.
Source of the image: Getty Images.
The biggest challenge of social security so far
As of this year and continuing from year to year, social security should spend more than it generates in annual revenues. The last time this occurred was in 1982. Although this initial net cash outflow is relatively modest, it is expected to accelerate considerably in 2020 and beyond. According to the latest directors' report, by 2034, all of the $ 2.89 billion social security asset reserves will have completely disappeared.
The good news for the elderly (and other beneficiaries as well) is that social security will not disappear. Even if the interest earned on its asset reserves is expected to disappear, it will still generate substantial recurrent income from the payroll tax on labor income and the taxation of benefits. In other words, the program is not likely to go bankrupt or insolvent, which means that payments will continue for future generations of workers.
The real problem is that the depletion of social security asset reserves conclusively demonstrates the unsustainability of the existing payment schedule. Directors predicted the need for a widespread benefit reduction of up to 21% by 2034 in order to maintain benefit controls without the need for any reductions. 2092. Since more than three out of five seniors are paying their monthly salary. check for at least half of their income, such a scenario is downright scary.
Source of the image: Getty Images.
Flash info: We absolutely need a bipartite social security solution
You may be wondering why social security has not yet been set by Congress and put on a path where it can succeed for present and future generations. The answer, simply, is that Republicans and Democrats can not agree much on the country's most important social program. Each party believes it has the only solution that could erase the estimated $ 13.2 trillion of program gap between 2034 and 2092, leaving no incentive to compromise in the medium term with the opposition.
But, in reality, we are absolutely will need bipartite cooperation to strengthen social security for current and future generations. Let me explain why.
Why do we need an increase in the cap on taxable profits?
From one side of the aisle is the Democrats' main proposal to increase the ceiling of maximum taxable earnings related to earned income. In 2018, all earned incomes between $ 0.01 and $ 128,400 are subject to payroll tax of 12.4% (although workers employed by someone else only cover the half of this obligation, 6.2%, and their employer covering the other half). Earnings earned above this level are exempt from payroll tax, thus allowing a small percentage of affluent workers to escape paying tax on a portion, or the majority of their income. The cap increases each year to the same level as the national average wage index.
Without doubt, the most popular social security patch among the American public is to raise the earnings ceiling or eliminate it altogether. Given that over 90% of US workers already contribute to social security for every dollar earned, raising or raising this cap would only affect a very small percentage of the population.
Source of the image: Getty Images.
The reason Congress needs to raise or raise this ceiling is simple: the amount of tax-free earnings has been steadily increasing over the last few decades. In 1983, "only" 300 billion dollars of earned income escaped the tax on the wage bill of social security. However, in 2016, income of $ 1.2 trillion was exempted. As income inequality between rich and poor continues to widen, the amount of earnings avoiding payroll tax should also result in lower revenues for the program. Raising or removing this cap would help level the playing field on income inequality, with respect to the payroll tax, as well as generating an additional annual income that could support the current payment schedule up to 39, in 2092.
In short, it is essential to raise the ceiling, otherwise an increasing percentage of income will escape the tax on wages.
This is why it is essential to raise the age of retirement
However, the other side of the aisle offers an equally important solution. Republicans have long called for an increase in the age of retirement, or the age at which a worker becomes eligible to receive all of his retirement benefits, depending on his year of birth.
The age of full retirement is currently set at 67 for people born in 2022 or later. However, between the creation of social security in 1935 and 2022, the retirement age will have increased only two years. That's right … in almost nine decades, the full pension has gone from 65 to 67 years old. The problem is that longevity has increased dramatically over this period, with average life expectancy increasing by nine years since 1960. We also found that many more workers are now turning 65 two decades ago. Social security has not been designed to support retired workers for decades when it was conceived in the mid-1930s, which further increases the program.
Source of the image: Getty Images.
For example, by gradually raising the retirement age to 69 or 70, workers would have to wait longer to receive their full benefits or accept a larger monthly payment reduction if they claim more. quickly. In any case, lifetime benefits to workers would be reduced over time, saving money for social security in the long term. Keep in mind that this would not affect current retirees, but it would be a lifetime reduction in benefits for future generations of retirees if it is passed.
"Reducing benefits" may seem like a terrible solution, but not raising the retirement age, as longevity continues to increase, would lead social security to a disaster even with the removal of the ceiling of Tax on wages. These fundamental proposals of the Democrats and Republicans are crucial solutions that must be included in a bipartisan solution. In my opinion, one without the other will be nothing more than a social security dressing.
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