Social Security has a serious financial problem. Cash outflows from benefit payments have been growing more quickly than inflows from taxes for nearly two decades. The program has run a deficit since 2021, and the trustees expect that trend to continue indefinitely without Congressional intervention.
To quantify the problem, the projected long-term funding shortfall exceeds $22 trillion through 2098, and the trust funds that pay Social Security benefits could be insolvent by 2035. If that happens, revenue from taxes would support just 83% of scheduled benefit payments, meaning benefits could be cut by 17% within a decade.
Congressional lawmakers have yet to set aside differences in political ideology to find a solution. But a recent survey conducted by the University of Maryland’s Program for Public Consultation (PPC) suggests a bipartisan fix is possible. Read on to see four Social Security changes that could resolve the financing problem without across-the-board benefit cuts.
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1. Make income over $400,000 subject to Social Security’s payroll tax
The Social Security program is mostly financed through a dedicated payroll tax. Employees and employers pay 6.2% of wages up to the maximum taxable earnings limit. The taxable maximum is $168,600 in 2024, but it generally increases each year to account for changes in the average wage. Any income above the limit is not subject to taxation by Social Security.
Applying the payroll tax to income exceeding $400,000 would reduce the long-term funding shortfall by 60%. The vast majority of American voters support that change, including 89% of Democrats and 87% of Republicans, according to the University of Maryland’s PPC.
2. Raise the Social Security payroll tax rate to 6.5% over six years
The Social Security payroll tax rate is currently 6.2%, such that employees and employers collectively pay 12.4% of wages. Gradually raising the tax rate to 6.5% over six years would reduce the long-term funding shortfall by 15%. Most American voters support that change, including 87% of Democrats and 87% of Republicans, according to the University of Maryland’s PPC.
3. Gradually raise full retirement age (FRA) to 68 by 2033
Workers can claim retirement benefits as early as age 62. But they will not be awarded their full payout, also known as the primary insurance amount (PIA), unless they claim Social Security at full retirement age (FRA). Currently, FRA is age 67 for workers born in 1960 or later. Workers that claim Social Security before FRA receive a reduced benefit, meaning they get less than 100% of their PIA.
Gradually raising FRA to age 68 by 2033 would reduce the long-term funding shortfall by 15%. The vast majority of American voters support that proposal, including 88% of Democrats and 91% of Republicans, according to the University of Maryland’s PPC.
4. Reduce benefits for workers with income in the top 20%
Social Security benefits are based on a formula that considers lifetime income across two dollar amounts known as bend points. Specifically, a worker’s PIA equals the sum of 90% of income below the first bend point, 32% of income between the first and second bend points, and 15% of income above the second bend point.
Adjusting those percentages to 90%, 32%, and 5% for the top 20% of earners would reduce the long-term funding shortfall by 11%. That proposal enjoys widespread support among American voters, including 93% of Democrats and 92% of Republicans, according to the University of Maryland’s PPC.
