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How can Social Security be saved?

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"The 360" shows you diverse perspectives on the day's top stories and debates.

What's happening

The Social Security trust fund, a massive reserve supply used to prop up the nation's largest social safety net program, will run out of money one year earlier than anticipated as a result of the coronavirus pandemic, according to a report from the U.S. Treasury released at the end of August.

The majority of funding for Social Security comes from payroll taxes. But in years in which those taxes aren't enough to cover the cost of the benefits owed, the trust fund is tapped to ensure that benefits are paid in full. If that fund runs out, the Social Security Administration will only be able to pay out what it brings in through payroll taxes in a given year. The agency expects Social Security benefits will be cut by 24 percent across the board starting in 2033, when the fund is projected to be depleted.

Historically, payroll taxes have been more than enough to fund Social Security. In recent decades, though, the pool of workers paying into the program has gotten proportionally smaller at the same time as the share of retired Americans has ballooned, a trend that's only expected to become more pronounced in the coming years. News stories about the impending insolvency of Social Security have undercut public confidence in the program, especially among younger generations. About a third of millennials said they believe they "will not get a dime" of Social Security when they retire.

As long as the government collects any payroll taxes at all, there's no risk that Social Security benefits will disappear entirely. But any cuts to benefits caused by funding shortfalls would deal a major blow to millions of older Americans and people with disabilities. About half of retirees rely on the program for at least half of their monthly income. Social Security also keeps an estimated 20 million people in the U.S. out of poverty.

Why there's debate

The debate over how to shore up Social Security has been going on for decades, but there haven't been any substantial changes to how it works since the early 1980s — when Congress bolstered the program by increasing taxes slightly and gradually raising the full retirement age from 65 to 67 for everyone born after 1960. That remedy was a combination of the two most common proposals to handle the modern Social Security problem: Decreasing costs through benefit cuts and increasing revenue through tax hikes.

Today most Democrats support the latter solution exclusively. During the presidential campaign, Joe Biden released a plan calling for an increase in the size of benefits, especially for the oldest Americans, paid for by applying payroll taxes to those making more than $400,000; under current law, only wages up to about $140,000 are subject to Social Security taxes. Some progressive lawmakers have called for more aggressive taxes on the rich, including a wealth tax, to fund the program for the long term.

The idea of privatizing Social Security — by having a worker's payments go into a private account rather than a national fund — has been popular among conservatives in recent decades. Others have pushed a variety of cost-cutting measures, including raising the retirement age, limiting benefits for those with large personal retirement accounts and privatizing the program for Americans over a certain income threshold.

What's next

The country's other major social program for the elderly, Medicare, is also backed by a trust fund that's facing insolvency in the near future. The $3.5 trillion spending bill currently being negotiated among Democrats in Congress includes a plan to expand Medicare so it includes vision, dental and hearing coverage. The extra costs would be covered by savings that come from allowing the government to negotiate lower prescription drug prices. It's unclear at the moment whether these adjustments to Medicare, or any plan to shore up Social Security, will make it into the final proposal.

Perspectives

The retirement age should be raised

"Raising the retirement age reduces the number of beneficiaries, thereby reducing the costs of the program. Raising the future retirement age, while not a popular proposition, encounters less political risks than reducing retirement benefits and increasing taxes." — Joseph Chamie, The Hill

Social Security should be privatized

"Given the federal government's track record of awful fiscal management, it also makes sense to empower individuals to control more of their retirement savings. Privatizing Social Security — or at least letting individuals opt-out of the program so they can escape the sinking ship — would be a huge win for younger workers who have time to save on their own." — Eric Boehm, Reason

A hybrid system would bring the best of privatization and the social safety net

"Social Security as we know it needs to be abolished and replaced with a better system. There are many methods for doing so. For example, if liberals were willing to accept privatizing half of the contributions and conservatives were willing to accept using the other half as a safety net for only those retirees with the least resources, then the system could be saved and privatized." — David John Marotta, Forbes

Democrats' plans to massively boost spending on other programs must be scrapped

"If the so-called Democratic moderates are sincere in their concerns about the nation's unsustainable debt, the new reports from the Social Security and Medicare trustees should convince them to change course, ditch their party's reckless liberal agenda, and act responsibly to address another crisis that is staring us in the face." — Philip Klein, National Review

Panic about an impending Social Security collapse is unnecessary

"Can Social Security be adjusted to continue paying full benefits to future generations? Yes, and the fixes are actually rather straightforward and manageable." — Lawrence Eppard, Roanoke Times

Benefits for wealthy retirees should be reduced

"Over the next decade, Washington is projected to provide $1.6 trillion in Social Security benefits for upper-income seniors. Congress could save hundreds of billions of dollars by modestly paring back the initial benefit formula for future wealthy retirees. … These savings would grow rapidly in future decades as more wealthy seniors retire." — Brian Riedl, Daily Beast

A wealth tax would fund Social Security for the long haul

"The Federal Reserve estimates that there is $130 trillion in household wealth in this country. (An astonishing $42 trillion, or about a third, is owned by the richest 1% of households.) So it wouldn't take much of an annual wealth tax to rescue the retirement system. A 1% flat rate on absolutely everybody would do it." — Brett Arends, Marketwatch

Whatever the solution, it needs to be enacted soon

"By the time that trust fund depletion date rolls around, the game is long over. At that point, the size of the shortfall is so large and so vast, that there really isn't a realistic prospect of closing the shortfall." — Charles Blahous, former Social Security public trustee, to CNBC

Debates over the solutions are irrelevant if politicians are too afraid to tackle the problem

"Without the political will to tell voters that the entitlement programs are on a failing trajectory, the details of how any president and Congress would tweak them are immaterial. … The towering issue now is whether Biden will, like presidents before him, let the nation drift closer to an insolvency crisis or, instead, will be the leader who saves these programs." — Editorial, Chicago Tribune

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Photo illustration: Yahoo News; photos: Getty Images

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