Retirement Blog

Finance Blogs » Retirement » Raise taxes to fix Social Security

Raise taxes to fix Social Security

By Jennie L. Phipps · Bankrate.com
Wednesday, June 5, 2013
Posted: 5 pm ET

Social Security's financial situation hasn't changed much since last year, according to the annual Trustee's Report released last week.

  • Social Security's deficit remains at 2.7 percent of taxable payrolls nationwide.
  • Its deficit is 0.9 percent -- that's less than 1 percent -- of the gross domestic product.
  • There is enough money in the Social Security trust fund to pay full retirement benefits through 2033. After that, payroll taxes at current levels will bring in about 75 percent of the money required to pay Social Security's obligations.

Despite what some argue is a positive outlook for this retirement planning program, almost all the Social Security gurus who have analyzed this report agree that something should be done to put Social Security on a solid footing at least for the next 75 years, so younger generations can continue to count on it.

Veteran economist Alicia Munnell, director of the Center for Retirement Research at Boston College, says the best fix is the easiest one: Raise the payroll tax for both employees and employers. By her calculation, if payroll taxes were raised by 2.72 percentage points -- 1.36 percentage points each for employees and employers -- Social Security would be able to pay benefits, calculated the way they are now, through 2087, when somebody born today would be 74 years old.  By then -- who knows? That's kicking the can a long way down the road.

Munnell says most people won't be hurt by such a small increase in taxes. Payroll taxes were cut for employees in 2011 and 2012 by 2 percent and reinstated in 2013, and a lot of people didn't even notice the change, she says.

The most popular suggestion for fixing Social Security is to raise the current $113,700 wage cap, but for that plan to more than minimally cut the deficit, high earners couldn't get more benefits. Munnell says, "If we're going to raise the base, we should provide more benefits."

She also is unenthusiastic about trimming the way the cost of living adjustment, or COLA, is calculated, a proposal that has received the nod from President Barack Obama. "I'm sad that it was thrown out there. It didn't do anything but garner opposition and correctly so, because it is a benefit cut. As part of a package where we put a lot more money in the program, changing the way the COLA is calculated might be a possibility, but it isn't the way to lead off the debate on fixing the system.

"When I look around, I see only 401(k) plans with minimal balances, so Social Security is going to be all that most people have. Therefore, I come down on the side of putting more money in the system instead of cutting benefits," Munnell says, firmly.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
14 Comments
c.e
December 26, 2013 at 7:54 pm

I think that people should not say if someone is disabled or not. I am only 19 years old and have never worked, and I can't work. I will be collecting SSD for the rest of my life, and I don't care if people get mad about it. I can't help if I can't work and that is all it is to it!!!

Wayne Dunaway
November 07, 2013 at 8:43 pm

Take the cap off of Social Security Taxes.

7cedars
June 16, 2013 at 8:32 am

I agree with most on the commentors, SS has been pillaged by the government for many years now, and it's time it's paid back. SS disability is constantly being abused. I totally agree that ONLY those who pay into it, should receive it, and/or their beneficiaries.