NOW THAT IT’S TOO LATE, “to do it the easy way.” Dale Coberly . . .

Notes on possible fixes after reaching “short range financial inadequacy.”

The Social Security Trust Fund is projected to run out of money by 2033. Possible fixes to fix the short fall in the Social Security Trust Fund.

first possible fix Wait until 2033 then raise payroll tax 4% (combined worker and employer tax rate). Most workers would only see a 2% raise.

This would fix SS essentially forever, because the projected shortfall in funding is 4% of payroll. It would be not the best fix because by 2033 the Trust Fund will run out of money and therefore will not be able to pay the interest that otherwise pays the one-half percent of payroll needed each year to make up the difference between the payroll tax and the cost for the benefits that year. Moreover, the loss of the Trust Fund would mean that Social Security would not have a “prudent reserve” to meet any short-term gaps between income and outgo.

Also, the sudden need for a 4% increase in the payroll tax would be portrayed by the enemies of Social Security as an unbearable burden. Actually, it would probably not even be felt by people who are not already disposed to resent all taxes. It is very hard to explain to them that Social Security is the only “tax” that gives them their money back with interest when they need it most. It also ensures the money will be there for certain, adjusted for inflation and the rise in the general standard of living, (that is, the rise in real wages). SS also provides insurance for those whose lifetime of working did not pay enough for them to save an adequate amount for retirement. The money for this insurance comes mostly from the SS taxes paid by the rich . . . which is why it is wrong to say the rich do not pay their fair share. The “rich” pay into SS more money than low earners, but if they stay rich they get back in benefits a lower percent of what they paid in. Thus, Social Security is a progressive program in spite of being called a “regressive tax” by some people who want to turn SS into welfare.

second possible fix Increase the tax the “immediate and permanent” 3.5% that the Trustees Report says will keep Social Security “solvent” for the next 75 years. This would work. However, the Trustees Report says that at the end of the 75 years a “significant” increase would be required.

The enemies of Social Security call this “kicking the can down the road,” apparently because they believe the people living seventy-five years from now will be unable to raise their own payroll tax the additional one half of one percent that would be needed. …even though their real incomes will be about four times greater than ours today. The real problem that I see with this is that 3.5% “all at once” would be noticed and would be used to panic voters into letting Congress cut benefits, raise the retirement age, privatize Social Security, or “make the rich pay,” any of which would destroy Social Security as we know it…that is, as it has worked for over eighty years to keep old people, widows and orphans, and the disabled out of severe poverty.

third possible fix Add to the Trustees “immediate and permanent” a provision to raise the tax a further one tenth of one percent per year (each for the worker and for the employer) whenever the Trustees Report projects “short range financial inadequacy.” This should happen in about 2085. giving the program time to raise the payroll tax the needed extra one half of one percent (combined) that would keep SS solvent as far as the eye can see. This “extra” increase would be better introduced earlier than 2085 so the program can overshoot “solvency” enough to remove all doubt about the soundness of the program. But not raised so soon that people will feel betrayed by calling it “immediate and permanent.”

It was only going to be permanent for the current seventy-five-year actuarial window. But each year we move into a new seventy-five-year window with one less year where the costs have already been paid, and with one more year where the taxes have not already been paid for. This moving window would allow the enemies of SS to shout every year the “SS is going broke!” It is likely that any new tax increase needed after the current seventy-five-year window will be covered by the interest from the Trust Fund. During all this time while the tax is going up at a rate that will average less than one tenth of one percent per year (each), real wages will increase over one full percent per year. So, the worker will have more money in his paycheck AFTER paying the higher tax than he has today. As well, he will have paid for a longer retirement with higher real benefits than retirees get today.

fourth possible fix, Raise the payroll tax one tenth of one percent per year for each the worker and the employer. This is about one dollar per week per year. the American Academy of Actuaries would work, and it is the only plan on the table that would preserve Social Security as it has worked for over eighty years—as worker paid insurance for workers. There is one problem with this plan: the one tenth percent increases per year would need to start by 2025 or they will be too late to avoid the Trust Fund running out of money and therefore SS being unable to pay full scheduled benefits. There is no indication that Congress will act soon enough.

fifth Increase the tax TWO tenths of one percent . . . about two dollars per week . . . per year. This would create long term solvency instantly removing the threat of the Trust Fund running out in ten years as currently projected and reaching the 4% increase needed for permanent solvency by 2035.

[ note the two tenth percent increase is what the worker would see. The ultimate 4% needed increase is for the program as a whole . . . includes both the worker share and the employer share.

sixth Increase the tax in 2026 by one full percent . . . 1/2 percent for each the worker and the employer. follow that with one tenth or two tenth percent increases, with or without the “short range financial inadequacy” trigger. This has the virtue of solving the problem entirely very quickly. The problem is not so much the finances of SS, but the screaming and lying about it we hear every year.

seventh possible fix Increase the tax 2% . . . 1% for the worker and 1% for the employer. Polls have shown that that workers would rather see a 1% increase in their tax than any cut in benefits. Following this increase with yearly increases of one tenth percent or two tenths’ percent would make SS solvent forever by 2031 at a lower final tax rate than the 1/2 of one percent increases described above in the “sixth fix.”

eighth possible fix just raise the tax in any year to make up the difference between expected income and expected outgo in the following year. . . This would be on the order of one tenth of one percent of income until the payroll tax rate is increased about 4% above present level. Note: this 4% increase is for the “program.” Most workers and their employers would only see a 2% increase each.