According to the Social Security Board of Trustees, the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be depleted in 2034.
When this happens, only 77 percent of benefits will be payable. That estimate is no change from last year’s estimate.
In addition, the Disability Insurance trust fund will be depleted in 2028, which is an improvement from last year’s estimate of 2023. Once that fund is depleted, 93 percent of benefits will be paid.
Right now, Social Security continues to take in through revenue more than it pays it through benefits, which is expected to continue until 2022. Once Social Security begins to pay out more than it takes in, it will be forced to liquidate the assets held by the trust funds.
In 2016, Social Security generated $957 billion in income. It only paid out $922 billion including $911 billion in benefits to 61 million beneficiaries.
“It is time for the public to engage in the important national conversation about how to keep Social Security strong,” said Nancy A. Berryhill, Acting Commissioner of Social Security in a statement. “People understand the value of their earned Social Security benefits and the importance of keeping the program secure for the future.”
One of the most tempting solutions to strengthen Social Security is to increase the payroll tax. Currently Social Security is financed by a 12.4 percent payroll tax with half paid by employers and the other half paid by employees. But only the first $127,200 of wages is subjected to the payroll tax.
But increasing the payroll tax is not a good long-term solution to fixing Social Security. For example a higher payroll tax would have negative economic effects. In addition, it’s not even clear that raising the payroll tax would even generate enough revenue.
“Some claim that the solution to preserving Social Security is to raise more taxes, but history shows that doesn’t work,” said David Barnes who is the director of policy engagement for Generation Opportunity in a statement to the Washington Free Beacon. “In fact, since Social Security was created, payroll taxes have been raised more than 20 times. Twenty times! Yet, the program is still headed towards insolvency.”
What Social Security needs is serious reform. Ideally, it would include an option for young people to opt-out of the program. However, such a radical proposal is unlikely to be offered.
Instead, there needs to be reform of everything from the retirement age to how benefits are calculated. The latest reform proposal offered by House Social Security subcommittee chairman Sam Johnson (R-Tx.) is promising. He proposes raising the retirement age to 69 for those born in 1968. He also proposes eliminating the Cost of Living Adjustment in benefits for those making over $85,000 a year. Finally, his proposal actually increases benefits for low-income retirees anywhere from 10-20 percent.
Johnson’s proposal is a good start for making Social Security more solvent. However, young people should be given the opportunity to opt-out of the program. Let younger Americans keep their money and invest it as they see fit.