With baby boomers retiring in growing numbers, more people working fewer hours in a still-sluggish economy, and the payroll tax revenues that fund the system cut for a second year, it hardly comes as a surprise that the Social Security trust fund is going broke even faster than previously expected.
The new government report sounds the same old refrain, really, but with scarier numbers: Social Security’s day of reckoning is closer than ever, not just because of the passage of time, but because Congress has refused to alter the formula in a way that will keep the system solvent through the 21st century.
In fact, Congress has done worse than nothing. Last year and this, at President Obama’s urging, it chopped workers’ contribution into the system from 6.2 percent of their first $110,100 in earnings to just 4.2 percent. While the tax cut had short-term merit — getting low and middle-income workers a little extra take-home pay to help stimulate the economy — it undermined a longer-term solution for Social Security.
So instead of going broke in 2036, the fund is now projected to run dry in 2033. That may sound like plenty of time for Congress to come up with a fix, but as recently as seven years ago, the day of reckoning was forecast for 2042. So clearly something needs to be done sooner rather than later, because the longer Congress waits, the harsher the medicine will have to be.
The options right now don’t seem that drastic: They include raising the payroll tax (back to 6.2 percent or beyond) or the income limit susceptible to the payroll tax; hiking the retirement age or taxing wealthier recipients’ benefits more. Since the existing payroll tax covers 75 percent of all benefits, it wouldn’t much more than a tweaking of any of these options to cover the remaining 25 percent. Perhaps the best compromise would be a combination of all the ideas.
The problem is, Social Security remains the “third rail” of American politics — no one wants to touch it, least of all in an election year. But with all the baby boomers scheduled to retire in the next decade and a half, the smart politician just might realize that there’s more to be gained from rescuing Social Security than letting it hit the rocks. Or to put it another way, if Ronald Reagan tolerated a slight benefit “adjustment” during his presidency (the gradual hike in retirement age from 65 to 67) so can any other president. Democrat or Republican.