In the midst of the electoral campaign leading up to next November’s elections, Social Security is one of the most debated topics between the two candidates, current Vice President Kamala Harris, and former President Donald Trump. In fact, the Republican candidate has an idea that has captivated a large portion of the electorate that could potentially defund the Social Security system.
While the short-term idea might be seductive, because, hey, not paying taxes for a while sounds like a great idea (nobody loves taxes). However, the definancing of the Social Security system in the long term could become a crisis that would cause benefits to be cut in less than ten years, if the forecasts are accurate.
Americans Don’t Want to Pay More Social Security Taxes
According to a recent survey by the Wall Street Journal, about 64% of Americans would support eliminating Social Security taxes, while 19% said they partially favor this policy, and 10% definitely oppose it. The issue here is that former President Trump proposed precisely this idea, should he reach the White House again.
The idea is particularly popular in a post-pandemic US economy in which rising expenses for many seniors, as well as the fact that more Americans will be receiving their benefits in the coming years, it’s no surprise to see more and more taxpayers agree in seeing restrictions on the amount of money they have to pay in taxes.
Trump’s Idea Would Defund Social Security and Increase the National Debt
It has already been established that more and more Americans approve of the idea of paying less Social Security taxes, but it remains to be seen how much they are aware that the federal government will be in serious financial trouble: it will have to take on more national debt and increase the already gigantic debt of $33 trillion.
The appeal is clear: people want to have more money in their pockets today, in the short term, but then, when they reach retirement age, they will not have saved enough money to enjoy old age with all their living costs covered. . Most voters only see the immediate benefit, which is increased disposable income, but no one pays enough attention to where the income needed to replenish the OASI fund, which pays benefits to current recipients, is coming from.
Retirees do not return to work because of taxes
As of today, about 50% of Social Security recipients have some of their income subject to tax: if your total income exceeds $25,000 for individuals, up to half of your benefits may be subject to Social Security taxes. . But, if income exceeds $34,000 annually, up to 85% of the payments may be subject to tax.
It is because of these regulations that most people, once they retire, do not go back to work because, even if they wanted to, they would be forced to pay new taxes. This causes their Social Security benefits to not be enough to cover their complete needs during their retirement years, and many end up applying for Supplemental Security Income (SSI).
The Social Security Financing Crisis in the United States
There are four basic factors that are causing growing definancing. The first thing is that the Baby Boomer generation (those born between 1946 and 1964) is reaching retirement age, meaning that an increasing number of seniors are beginning to claim the Social Security benefits they deserve and for which they have paid for. decades. This puts pressure on the system as there are more beneficiaries compared to the active taxpayers funding the program.
Apart from that, the population is aging more and more (and faster), while the proportion of workers who contribute to the system, compared to recipient beneficiaries, decreases. In past decades, there were many more workers for each beneficiary, but that ratio is changing. With fewer young workers entering the workforce and more people retiring, financing becomes a difficult challenge to navigate.
The Social Security Administration (SSA) has a trust fund that is used to pay benefits when contribution income (through payroll taxes) is insufficient. This fund is estimated to be depleted around 2033, meaning that if no changes are made to the system, Social Security will only be able to pay benefits based on current earnings, which could be around 77% of benefits promised.