In a speech Tuesday, Joe Biden said that Democrats would protect Social Security while Republicans could threaten its future. However, the “reality” Biden presented is deceitful and threatens Social Security’s future.
The future of Social Security is uncertain. There are few options for reform as the program is running out time and money.
These are seven facts that Americans should know in order to make informed decisions about their futures and which Social Security reforms will be most beneficial for them.
The Social Security taxes that workers pay are not set aside for retirement. The federal government uses Social Security’s revenue to pay for other government spending. Social Security started paying out more benefits than it collected in taxes 12 years ago. This means that the IOUs have to be cashed in and deficits added. However, these IOUs will expire in 12 years.
Social security is not secure. Social Security’s retirement program in 2034 will collapse if policymakers don’t take action. Benefits will also be reduced by 23%.
Social Security’s deficit is $20.4 trillion. Social Security’s popularity is due to the fact that it has provided more benefits than it pays in taxes. Social Security’s old-age, survivors’ and disability insurance programs will pay $20.4 trillion more in social security benefits than they collect in taxes in the next 75 years. This is a $157,000 shortfall for each household in America. This is why Social Security reform will be so hard. But the more policymakers delay, the higher the cost of Social Security reform.
Inaction can lead to a huge financial loss. Social Security’s unfunded retirement and disability obligations grew from $8.6 trillion per household and $71,000 per household between 2010 and 2020 to $20.4 trillion per household and $157,000 each household. These costs will continue to rise until Social Security policymakers face insolvency.
Current and future workers are not getting the best deal on Social Security. While Social Security was a great deal for Biden’s generation it is not for current or future workers. According to Heritage Foundation, the average worker younger than 50 could get three times more from Social Security if they had the ability to save Social Security taxes and put them into their retirement accounts. Saving on their own could result in 40% higher retirement incomes for low-wage workers earning around $20,000 per year. Personal savings can also be passed to loved ones and friends. This is especially important for low-income Americans, who are less likely than others to save beyond Social Security, as well as for those with shorter lives expectancies. One in five black men will reach 65 years old between 45 and 65. This means they will have to contribute tens of thousands or more dollars to Social Security, and may receive little or no return.
Democrats’ Social Security plan would accelerate insolvency and increase shortfalls. Democrats propose “Social Security 2100, A Sacred Trust”, which they claim will increase Social Security benefits and reduce program shortfalls. It also conforms to Biden’s promise to not raise taxes for those earning less than $400,000. This claim is at best disingenuous. Their “Sacred Trust” has 75 years worth of tax increases on high income earners to fund just five years’ worth of benefit increases for all. These benefit increases would be permanent, as is the intention of its supporters. “Social Security 2100: Sacred Trust” would accelerate Social Security’s insolvency by 2 years (to 2032), and increase the already large shortfalls of the program by 21%.
A typical household would need to pay $3,000 more in taxes under the Democrats’ Social Security plan. To make the benefits increases of “A Sacred Trust permanent”, Social Security’s payroll tax would need to be raised from 12.4% to 16.7%. This is in addition to the proposed tax increases for people earning over $400,000 This would add $3,000 to the annual cost of Social Security taxes and total Social Security taxes for the median household at $11,800.
Americans must recognize that reforming Social Security is difficult. In the much-needed discussions and actions to preserve and enhance Social Security, disingenuous proposals are not welcome.
Although there is no way to reverse the past excesses which have made Social Security so popular, and so indebted to the taxpayers, there are ways to help the most vulnerable Americans and improve Social Security for the future.
Congress can help refocus the program to its original purpose, which is financial security and senior poverty prevention. It’s possible for more people to be better off by reducing the impact of Social Security on their personal incomes and nest egg.