Agree. There should be no cuts to Social Security, but programs must be strengthened.
Last week, the Congressional Budget Office confirmed dire estimates that the Social Security Trust Fund will be depleted by 2033. If nothing is done, benefits will be cut by about 23% across the board for all beneficiaries. That’s about $17,400 less per year for a newly retired couple.
At least some Americans expect these cuts to be imminent. A Gallup poll released in December found that only half of Americans expect to receive some sort of Social Security benefit when they retire. This fear of a precarious retirement is part of the reason why many Americans remain pessimistic about the economy, even though unemployment is low and inflation is slowing.
Any cuts would be devastating. Before Social Security, more than half of older Americans lived in poverty. Today, that number has dropped to about 10%. This is primarily because Social Security significantly boosts the incomes of most seniors.
Social Security is equivalent to a public savings program. Workers pay severance pay throughout their tenure. Most of their donations cover benefits owed to older generations. When they retire, their benefits are paid for by the next generation’s premiums. Everyone pays into Social Security and everyone receives benefits. This is a deliberate design choice that has resulted in widespread support.
However, Social Security is progressive, meaning the amount received is not proportional to the amount a person spends. The replacement rate for lower-income workers is much higher than for wealthier Americans.
This is an important point to understand. Social Security benefits account for nearly all of the retirement income of Americans at the bottom of the income distribution. In contrast, these payments are minimal for high-income earners who have a lot of other resources to live on.
Across-the-board benefit cuts would hit the people who rely most on Social Security the hardest. This is especially unfair to older, lower- and middle-class retirees who rely on Social Security benefits and automatically pay into the program amounts they would have otherwise saved on their own. Dew.
As economist Martin Feldstein, a top adviser to President Ronald Reagan, pointed out in the late 1970s, Social Security and private savings are substitutes. The more Social Security assets a worker accumulates, the less they save for retirement in other ways during their working years. The substitution effect is largest for low- and middle-income workers.
Cuts to Social Security would be particularly harmful to nonwhite households. According to my research with Sylvain Catherine, 13 percent of black American wealth and 16 percent of Hispanic household wealth are at risk of disappearing if the impending bankruptcy of trust funds is not addressed. For white households, that’s just 7% of their wealth.
The next decade has something to give. The right way to fix Social Security is to make the program more progressive, not less. One of his ways to accomplish this is to raise more tax revenue from the people at the top. There is widespread public support for this, with ensuring Social Security solvency through tax increases being twice as popular as cutting benefits. Within Social Security’s current structure, that could mean taking more funds from payroll taxes without increasing the benefits paid to the wealthy (currently, high-income earners receive the first income (I only paid taxes on $168,600 of that amount.)
However, there is no reason why Social Security must be funded solely by payroll taxes. Tying higher taxes on the wealthy and big corporations to Social Security is a smart way to increase widespread acceptance by using the revenue raised to pay for programs people like. For example, a decision not to extend President Trump’s tax cuts would disproportionately benefit those at the top and save nearly $3 trillion over the next decade. That would alone generate enough money to maintain Social Security for 10 years.
Social Security is often said to be the most important element of the social insurance system. With the right adjustments, you can not only save the program for all Americans, but also make it shine even more.