Social Security — which is the snappy name for the Old Age, Survivors, and Disability Insurance Program — is perhaps the most iconic government welfare program ever created.
It has helped to fund the retirements of tens of millions of Americans.
In 2022, the government spent about $1.2 trillion on Social Security benefits, an amount that constituted about 20% of the entire federal budget.
These funds helped to support more than 48 million retired Americans as well as millions of disabled people and relatives of deceased workers.
Few politicians have dared to propose any significant reduction in benefits or tightening of qualifications in the nearly 90 years that Social Security has existed since its enactment in 1935.
However, there are growing concerns about the continued viability of Social Security due to the changing demographics of the American population.
Social Security was originally envisioned as a program that would provide supplemental financial assistance to Americans devastated by the Great Depression. Indeed, the U.S. Congress selected 65 as the age of eligibility to receive benefits because most people simply did not live that long in the 1930s — with the average life expectancy for women being 63.9 years and for men being 59.9 years.
Fast forward to 2022 and the average life expectancy for women has increased to 79.1 years and that for men has increased to 73.2 years.
However, the age of eligibility has not been appreciably increased in nearly 9 decades even though many Americans are now inconveniently living long enough to collect benefits for decades after retirement.
This unfortunate trend is frustrating to government planners who understand that the solvency of any social welfare program is dependent on minimizing the payments to eligible recipients.
The proportion of workers to Social Security recipients has also changed greatly since the inception of the program. In 1940, there were 42 workers per retiree.
By the year 2000, that ratio had dropped to 3 workers for every retiree. By the year 2050, it is estimated that there will only be 2 workers for every retiree.
So if we have fewer and fewer workers supporting more and more retirees, what can we do to keep Social Security solvent, particularly when it is projected to run out of funds in 2033 when all of its assets are exhausted?
Unfortunately, there are no magical solutions that will enable us to maintain the solvency of the program as it is currently structured.
However, there are a number of changes that can be implemented gradually so as to avoid triggering a full-scale rebellion by the citizenry.
These ideas are not new but have been kicked around the halls of Congress for many years with few politicians willing to implement them due to their own fears of political extinction.
First, there is the matter of the dedicated payroll tax which is the primary source of funding for Social Security.
The payroll tax is currently capped at a maximum income of $160,200.00 — meaning that any wages earned by an individual in excess of that amount are not taxed at the current 6.2% rate.
The Congressional Budget Office (CBO) estimates that eliminating the cap altogether would provide an additional $1 trillion dollars in tax revenue over the next decade to bolster Social Security.
Lower wage workers think it is a great idea; higher income workers believe that ending the cap would crimp their ability to pay for their children’s nanny and next year’s winter vacation in Gstaad.
Second, there is the idea of raising the age of eligibility to receive full retirement income benefits (currently 67 years) to 70.
Lawmakers do not want to raise the age too quickly due to their concerns about their own personal safety but they are considering gradually increasing the full retirement age by three years.
For new retirees, this change would constitute a cut in benefits of nearly 20% over the course of their time as beneficiaries.
Of course there is always the hope that another worldwide pandemic will cull the elderly population so that this difficult choice will not have to be made at all by our intrepid legislators.
Third, the cost of living increases, which resulted in an increase in benefits of 8.7% in 2022 due to inflation, could be limited.
The goods and services consumed by older Americans do not necessarily mirror the basket of goods and services used to calculate the Consumer Price Index — which determines the annual cost of living adjustments (COLAs) to Social Security payments each year.
As a result, these adjustments may overstate the benefits that should be paid to retirees based upon their consumption patterns.
On the other hand, these very same COLAs were negligible for most of the first two decades of this century due to the low rates of inflation.
Fourth, there is the proposal to subject Social Security recipients to some sort of means test so that those individuals having incomes and/or assets above a certain minimal amount would receive no Social Security benefits at all.
There is no consensus as to the cutoff amount but most recipients are fine with such a proposal so long as it does not apply to them.
Unfortunately, there are too few rich retirees for means-testing to make a big difference as only about 10 percent of benefits go to people with outside incomes in excess of $40,000 per year.
Regardless of the perceived fairness or unfairness of any of these proposals, Social Security will have to be revamped in some way to keep it afloat for future generations.
No one of these proposals will do the trick; the solution will probably involve a combination of most, if not all of these ideas.
Jefferson Hane Weaver is a transactional lawyer residing in Florida. He received his undergraduate degree in Economics and Political Science from the University of North Carolina and his J.D. and Ph.D. in International Relations from Columbia University. Dr. Weaver is the author of numerous books on varied compelling subjects. Read more of his reports — Here.
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