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The social security program has been struggling for a long time and pensioners are increasingly worried about its future. Although the latest report from social security administrators on the financial health of trust funds that support the payment of benefits deprives the time one is expecting for it to be about to be missed. 39, money from here 2034-2035, few people think that this year's respite is likely to repeat itself.
In response to the threat, many proposed potential solutions to solve the financial crisis of social security. They include a wide range of proposals. Some prefer to increase income by increasing payroll taxes. Others prefer the idea of reducing benefits, either by dramatic measures, such as widespread reductions in payments, or by more subtle measures, such as reducing the pace of upward adjustments related to inflation benefit checks. Still others have suggested even broader social security changes, which would bring more benefits, with funding proposals that would impose even higher taxes on those who pay into the system.
It is so monumental to convince Washington's legislators to accept a solution for social security that few people think this will be possible. However, the reality of the situation is much simpler to understand – and the final solution will almost certainly leave social security in a very similar light to today's.
Source of the image: Getty Images.
The size of the problem
The report of the Social Security Administrators for 2019 detailed the extent of the problem the program was facing. At present, social security, benefit tax and interest income on the Social Security trust fund balances are almost identical to those paid by the program. However, given the changing demographics of the US population, with more and more retirees receiving benefits and fewer workers contributing to social security through payroll taxes, administrators predict that the program will begin to use the trust funds to continue to pay benefits at the same time. their current level.
According to the report, once the trust funds run out of money by 2035, pension and survivor pensions will be sufficient to cover 77% of the benefits to be paid. The corresponding number of the disability component of the program is 91%. When you combine the two earmarked funds, the income that comes out of it will be enough to pay 80% of the amounts provided to social security recipients.
The obvious conclusion from this analysis is that the benefits will fall by 20%. However, the practical answer requires a closer look at the finances involved.
The ease for legislators
Instead of actually fixing the problem, the easiest thing for government officials to do is to provide external government funding for benefits. By supplementing existing sources of revenue with contributions from the General Fund, the funding gap will be filled to the detriment of widening budget deficits.
The magnitude of the problem makes such an approach less disastrous politically than one might think. Consider the current size of social security, which in 2018 paid $ 988.6 billion in total benefits. If you take 20% of that amount, you would have $ 197.7 billion.
This is a considerable sum, but it is only a quarter of the US $ 779 billion budget deficit that the US government recorded in its 2018 fiscal year. It is an even smaller fraction of the budget deficit closely $ 900 billion planned for the current federal fiscal year.
If you have the choice to cut benefits for 60 million or more social security beneficiaries or add a relatively small additional amount to an already inflated budget deficit, it is easy to guess the path to be followed by lawmakers. Despite the fiscal imprudence of allowing public debt to continue to rise, history suggests that legislators will be lazy and force future generations to pay the bill.
Prepare for everything that comes
None of this will prevent decision-makers from proposing changes to social security in the name of strengthening their financial situation. And indeed, lawmakers of the 1980s put their disagreements aside and found a consensus to bring real reforms to the program. However, in the current political context, it is highly likely that Washington will do nothing until 2035 – and even then, taxpayers will probably end up paying the bill for the inaction of their elected officials.
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