Small Business Funding

Social Security is the most successful anti-poverty program in the United States, with over 67 million beneficiaries and yet it faces a critical funding problem. Experts estimate the program’s trusts will run out of funds around 2035 if no action is taken by Congress. President-elect Donald Trump previously pledged tax cuts for older Americans, posting on Truth Social in July that “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” However, a cut in taxes would mean a cut in revenue to fund the program. Experts say Trump’s tax cut proposal could mean Social Security would be unable to pay its full benefits by 2033 two years ahead of the current estimate. If lawmakers cant come up with a solution soon, experts say the impact will be felt by nearly all Americans no matter which generation.So, how did Social Security get to this point? And how can we can fix it?How Social Security works The program is funded on a pay-as-you-go basis through your payroll taxes. Both employees and their employers split the payment. Salaries are only taxed up to a certain amount, and varies each year. In 2024, the annual taxable maximum was $168,600 per worker.Todays workers are paying into the funds for current beneficiaries. When the program runs in deficit distributing more benefits than receiving funding it can tap into its two trust funds, the old age and survivors insurance trust fund and the disability insurance trust fund. The only issue is that the program has been drawing into these trust funds since 2010, and experts say the funds are expected to be depleted by around 2035.How did we get here?Experts point to two main reasons why Social Security is unstable: longer life expectancy and a decline in fertility rates.According to the U.S. Census, around 10,000 Baby Boomers turn 65 years old every single day. By 2030, all Boomers are expected to be at least 65 years old, a demographic shift known as the Gray Tsunami. And with life expectancy rates in the U.S. averaging in the mid-seventies, they could be receiving Social Security benefits for a while. At the same time, fertility rates have declined. This shift started around 2008 during the Great Recession, and has not rebounded since, according to Brookings Institute’s Director of the Retirement Security Project Gopi Shah Goda. What are the proposed solutions? There are two main ways Social Security can be brought back to financial stability: cut benefits or increase revenue. An immediate cut to benefits would amount to around a 21% cut to all current and future beneficiaries. A gradual benefit cut would amount to a 25% decrease in benefits. Congress could also increase the retirement age, which would mean beneficiaries would receive a smaller amount of benefits over their lifetime. Goda has another proposal known as progressive price indexing. “It would change the way that benefits are calculated, in such a way that affects higher income earners more than lower income beneficiaries,” Goda said.Another angle is to increase the programs revenue. An immediate tax hike would amount to a 3.4% payroll tax increase. A gradual tax increase would raise taxes of combined earnings up to 16.6% by 2050. Increasing taxes would require approval by Congress. Social Security is also only invested in U.S. treasury bonds, which provide a low rate of return. There have also been calls for the program to invest in assets that are riskier, but may have a potential higher reward. The challenge with that is you have to balance the trade offs that might come with potentially higher returns, but also more volatility, Goda said. Another option is to increase the taxable maximum. Goda says this option would increase the revenue for the program and could also potentially increase benefits, which would improve the financial status of the program.Policymakers can also look into a mixture of increasing both payroll taxes and cutting benefits. The major roadblock is getting Congress to agree on a solution. “Lately we see both sides promising not to touch anyone’s benefits,” Goda said. “But also no willingness to also increase revenues. So that kind of results in an impasse.” The one thing experts can agree on is the need to act now. “The solution that’s needed is going to be bigger and affect more people the longer we wait,” Goda said.