Washington D.C., USA – The Social Security program is facing a significant financial crisis as the cost of paying benefits continues to rise. According to the Board of Trustees, the long-term funding deficit exceeds $22 trillion, and Congress has a limited time to address the issue before automatic benefit cuts take effect. As the 2024 election approaches, Social Security reform is expected to become a major talking point for presidential candidates, although groundbreaking revelations are unlikely.
The key issue lies in the fact that the trust fund that finances the Social Security benefits for retired workers, spouses, survivors, and disabled workers is projected to be depleted by 2034. This would result in a 20% automatic cut in benefits unless lawmakers intervene before the trust fund becomes insolvent. The imbalance is primarily driven by the rapid increase in beneficiaries, particularly due to the retirement of baby boomers, while the number of taxpayers has been growing at a slower rate.
Currently, protecting Social Security has been a common promise among politicians, with both major parties’ frontrunners navigating the issue using virtually identical strategies. However, there are no detailed plans outlined to address the funding deficit and ensure the solvency of the trust fund.
A recent Gallup survey revealed that a majority of Americans favor increasing taxes over reducing benefits to protect Social Security. Furthermore, a University of Maryland survey found that a significant portion of registered American voters supported specific tax increases, such as applying the Social Security payroll tax to income over $400,000 and raising the Social Security payroll tax to 6.5%.
While these tax reforms are likely to gain support among voters, they alone may not be sufficient to solve the funding deficit. It is expected that a combination of tax increases and benefit cuts will be necessary to shore up Social Security in the future, despite promises made by presidential candidates.
It is important for current beneficiaries to understand that any potential benefit cuts would likely be phased in gradually and would likely spare current Social Security recipients and those nearing retirement age, as seen in past amendments. For example, the amendments made in 1983 increased taxes on self-employment income and raised the full retirement age from 65 to 67 over several decades, resulting in a 13% cut in benefits that had no impact on current beneficiaries. As the presidential candidates discuss Social Security reform, Americans should keep this in mind.