Social Security may suffer cuts in the next decade because of funding issues. Congressional lawmakers are currently discussing the looming crisis and what to do about it. Hint: change will take time and compromise.
Social Security Basics
Once an American reaches the age of 65, they are eligible to receive payments from the Social Security system. However, payments are based on the contributions made during a beneficiary’s working years.
Social Security payroll taxes are collected from every worker’s paycheck and then paid out when an individual reaches the age of 65. However, an individual can defer payments, thus collecting a higher amount later.
President Roosevelt signed the Social Security Act into law in 1935. The law created the social insurance program to pay people into retirement beginning at the age of 65. Social Security has grown substantially since its inception.
In 1940, there were 222,000 beneficiaries. In 2023, an average of 67 million Americans receive a monthly check. The current schedule of monthly payments began in 1940 for retired workers, as well as their wives and widows, children under 18, and surviving parents.
Due to a looming funding deficiency, Social Security recipients face the possibility of a 20% cut in benefits. 2034 is the current estimate of when funds from the program will be depleted.
Social Security works by collecting payroll taxes on those Americans currently employed to fund the monthly payouts. The program has a trust fund that helps make up the difference between its income and payouts.
However, projections estimate that in the next decade, those trust funds will be depleted; without them, benefits will be reduced.
Republican Sen. Bill Cassidy of Louisiana and Democratic Rep. John Larson of Connecticut are two top lawmakers working to reform Social Security.
Proposed Solutions-Part One
Senator Larson has proposed Social Security 2100 in four sessions of Congress. His plan is to make benefits more generous. The generosity would be funded by increasing Social Security payroll taxes, as well as adding an additional net investment income tax, for taxpayers earning over $400,000.
Proposed Solutions- Part Two
Rep Cassidy wants to solve the Social Security crisis through a different approach. His proposal aims to create a new Social Security fund, raising $1.5 trillion to be invested directly in the stock market. This would be separate from the current trust fund, which is invested in cash and Treasury bonds.
Currently, with the divisiveness within Congress, change is unlikely. Also, change is still being determined before the election in 2024. Changes to Social Security need 60 votes in the Senate and thus agreement would have to be reached on both sides of the aisle.
Leadership is needed to craft the final language. The President will be influential in preparing Social Security changes. Congressional compromise is also a critical element if any solutions are to be reached. Without steps being taken on Capital Hill, millions of people wonder what will happen to the monthly benefits that have benefited 88 years of Americans.
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