Read the following from New York Times columnists Gail Collins.
By the way, Social Security is not going bankrupt. In 2033, incoming payroll taxes will no longer be enough to pay for all the benefits. But they’ll still cover about 75 percent of the payments and we could take care of the rest of the problem with a few tweaks — like getting rid of the cap on Social Security taxes. (Currently, all income over $117,000 is exempt from the payroll tax.)
Now read what the Social Security Trustees say in their latest report. Do you see anything there that only requires “a few tweaks?” Do you think that taxing all income above $117,000 is equal to 2.83% of the entire taxable payroll? And by the way, in 2033 it’s not just that incoming payroll taxes will cover only 77% of benefits. It also means that all Social Security reserves are depleted; there is no longer interest to be paid to the Trust. Imagine if that happened to your pension trust. In addition, along the way the Treasury will have to come up with the cash for the Trust to redeem its bonds.
The problem with simplistic liberal thinking is that it ignores reality. The solution is always tax higher income and all is right with the world. It just doesn’t work that way. In this case we should heed the warnings of the Social Security Trustees.
Conclusion
Under the intermediate assumptions, the Trustees project that annual cost for the OASDI program will exceed non-interest income in 2014 and remain higher throughout the remainder of the long-range period. The projected theoretical combined OASI and DI Trust Fund asset reserves increase through 2019, begin to decline in 2020, and become depleted and unable to pay scheduled benefits in full on a timely basis in 2033. At the time of reserve depletion, continuing income to the combined trust funds would be sufficient to pay 77 percent of scheduled benefits. However, the DI Trust Fund reserves become depleted in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 81 percent of DI benefits.
Therefore, legislative action is needed as soon as possible to address the DI program’s financial imbalance. Lawmakers may consider responding to the impending DI Trust Fund reserve depletion as they did in 1994, solely by reallocating the payroll tax rate between OASI and DI. Such a response might serve to delay DI reforms and much-needed corrections for OASDI as a whole. However, enactment of a more permanent solution could include a tax reallocation in the short-run.
For the combined OASI and DI Trust Funds to remain solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.83 percentage points (from its current level of 12.40 percent to 15.23 percent; a relative increase of 22.8 percent); (2) scheduled benefits during the period would have to be reduced by an amount equivalent to an immediate and permanent reduction of 17.4 percent applied to all current and future beneficiaries or 20.8 percent if the reductions were applied only to those who become initially eligible for benefits in 2014 or later; or (3) some combination of these approaches would have to be adopted.
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 59 million beneficiaries and 165 million covered workers and their families in 2014. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.
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