In the past, I have given an overview of the Social Security safety-net and presented some of the challenges the program has over the next 20 years.
Recently, the seven-term senior Senator from Utah and Ranking Member of the Senate Finance Committee, Orrin Hatch, asked the Congressional Budget Office, the CBO, several questions about the implications of altering the payroll taxes and the taxable maximum of those earnings as ways to help save the Social Security program for the next 75 years.
On July 11, the CBO released their findings. Keep in mind these calculations are only looking at changing the funding of the program and not retirement age or changes in benefits.
To get the program to solvency, Congress would need to raise the payroll taxes by 3.54% immediately. Doing so would fund the program until 2087. This however, represents a 29% tax increase. For instance, if you make $50,000 a year, your taxes would go up by $900 and the employers portion of the taxes would go up by $900. All of these increases must be taken into account as it impacts hiring and business growth.
Another option is to execute a combination of increasing the payroll taxes and raising the taxable maximum. Under current law, only income up to $119,400 is taxed for Social Security. This option would increase taxable earnings to 90 percent of all earnings, which means everything under $241,600. Depending on your tax bracket that means an increase of payroll taxes between 18 and 140 percent.
The challenge to these conversations is that some say, “Just tax all earnings.” But that doesn’t work. The CBO projects that taxing all earnings at the current rate would only cover scheduled benefits by 45 percent. It would take raising the payroll tax by 1.61% to reach full funding.
We need a full and vigorous debate on the future of Social Security. We need to have it free of threats and political vitriol. We need a solution; and we need it now.
How would you fix Social Security?
Full CBO Report (PDF)