President Joe Biden has brought attention to Social Security‘s future again, accusing sure Republicans in Congress of seeking to defund the program. This year, the program is expected to distribute about $1.2 trillion in benefits.
But AI CIO said Senators Bernie Sanders (I-Vermont) and Elizabeth Warren (D-Massachusetts) have introduced the Social Security Expansion Act which aims to ensure that the Social Security program remains solvent until the end of the 21st century and also improve its benefits.
The proposed legislation, which was introduced recently, would impose a 12.4% tax on investment income for individuals earning $200,000 or more and married couples earning $250,000 or more, which is equivalent to the combined employee and employer payroll rates.
How Social Security Program Works
Politifact said that approximately 67 million Americans will receive the retirement payments amounting to roughly $1 trillion this year. Many seniors depend on these benefits to cover their essential living expenses. Individuals can start receiving the retirement benefits at 62 years of age, but full benefits are granted at 67.
Most politicians from both parties tend to avoid proposing changes to the program since it’s regarded as the “third rail” in American politics, and meddling with it may result in losing the support of older voters, who usually have the highest voter turnout. Social Security is financed through payroll taxes, and the revenue goes into a trust fund to cover current beneficiaries.
The program was launched by President Franklin D. Roosevelt’s administration in 1935 and has become increasingly unsustainable as the number of eligible recipients and their life expectancy has increased, while the number of workers who pay into the program has decreased.
Social Security Program Funds To Run Out Soon!
According to a recent survey by Nationwide, one out of every three adults over the age of 26 believe they will not receive any benefits from the Social Security program they have been contributing to when they retire.
While politicians debate the future of Social Security, a new report by the Congressional Budget Office predicts that the program will run out of full funding a year earlier than previously estimated. Without government intervention, the Social Security Administration trust fund will become insolvent in 2032.
The CBO had earlier predicted the trust fund would run out by 2034, but later revised the deadline to 2033. According to the CBO, if the trust fund runs out, the federal government will only be able to pay 75% to 80% of the scheduled benefits.
Could 2023 COLA Strain Social Security Programs Solvency?
CBO Director Phillip Swagel said last week that the revised timeline for the program’s fund depletion can be attributed to the 8.7 percent cost-of-living adjustment (COLA) that has been added to the monthly payments of beneficiaries for 2023.
Maya MacGuineas, President of the Committee for a Responsible Federal Budget, told The New York Times that the large increase in COLA is expected to bring forward the year of insolvency by a year.
MacGuineas further explained that procrastinating on addressing these imbalances will leave people who depend on vulnerability to a further decline in its finances.
The rise in payouts for retirees will be partially offset by increased taxes on Americans. In addition to the higher benefits, the maximum amount of earnings subject to the Social Security payroll tax will also increase from $147,000 to $160,200. Employers and employees each pay 6.2% of wages up to the salary threshold, which is adjusted annually based on average wage growth.
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