In-Depth: Under current law, the maximum amount of annual income
that can be subjected to the payroll tax that helps fund Social
Security is $118,500 -- meaning that all income above that threshold is
exempt from those taxes.
This bill’s sponsor, Sen. Bernie Sanders (I-VT), called his proposal
“the most effective way to strengthen Social Security for the future.”
He also expects that if enacted it would boost monthly Social Security
benefits by about $65 for most recipients.
Given current projections, the Social Security trust funds would not be able to meet all of their obligations in 2033
-- when obligations would exceed incoming tax revenue -- and it would
only be able to pay out about three-quarters of scheduled benefits. In
an analysis of this legislation, the actuaries for the Social Security
trust funds estimated that this proposal would allow the provision of full Social Security benefits through 2060.
There have been several other proposals that address Social Security’s future insolvency without raising taxes. Some of which would raise the retirement age, while others would suspend ‘overlapping benefits’ that allow people collecting disability payments and unemployment benefits.
The retirement age is already being gradually raised from 65 to 67 years old for full Social Security benefits, but 70 is the age often being used in proposals as raising the retirement age to 70 could save nearly $35 billion. Given that life expectancy for those who reach age 65 has grown from 77.2 years in 1930 to 84.1 years in 2010 while the retirement age remained essentially constant, that may be a realistic option.
Of Note: The
main threat to Social Security’s long-term survival comes from the
shrinking ratio of workers to beneficiaries -- as the number of people
in the workforce paying taxes to fund the program has declined relative
to the number of people receiving benefits. In 1960, there were 5.1 workers for every Social Security beneficiary, by 2009 that number had dropped to 3 workers, and it is expected to fall to 2.2 workers in 2030.
Summary by Eric Revell
(Photo Credit: Flickr user frankieleon)