165 million Americans will see social security first in 2021
Social security is our country’s most popular social program. It pays benefits to more than 64 million people per month, the majority of whom are retirees. Of those retirees, 62% rely on their payment for at least half of their monthly income.
Additionally, an analysis by the Center for Budget and Policy Priorities (CBPP) found that, without Social Security, poverty rates among older people would be above 40%. For context, poverty rates for older Americans were around 9% at the time of the CBPP study in 2016.
Half of the country will see first social security next year
Yet Social Security is also an evolving agenda, and about 165 million Americans are going to see something happen in 2021 that hasn’t happened since before they were born.
Each year, the Social Security Administrative Council publishes a report that examines the short-term (10 years) and long-term (75 years) prospects of the program. In each of the past 35 years, administrators have warned that there will not be enough money collected by Social Security in the long run to cover program expenses. In the most recent report, this estimate of the funding obligation deficit increased by an additional $ 2.9 trillion to $ 16.8 trillion.
To be clear, Social Security is not heading for bankruptcy, even with this mind-boggling funding shortfall projected over the next 75 years. however, drastic benefit cuts of up to 24% could wait retired workers by 2035 – when administrators estimate Social Security’s $ 2.9 trillion asset reserves will be depleted – if nothing is done to shore up the program.
From 2021, social security is expected to spend more money than it collects. The last time the Social Security program experienced a net outflow was in 1982, the year before the Reagan administration passed the last major bipartisan overhaul. This means that about 165 million Americans alive today have never seen Social Security spend more than it collects in any given year.
What’s wrong with social security?
The big question you’re probably asking yourself is, “What happened?” In other words, Social Security recently celebrated its 85th anniversary since it was first enacted, and it has had minimal problems so far. What changed?
The answer is that we have witnessed an assortment of demographic changes underway that work against Social Security.
Lots of fingering inevitably targets baby boomers. While the departure of the baby boom generation from the labor market puts pressure on the worker / beneficiary ratio, the mere fact of being born is no reason to blame them for the erosion of the financial security situation. social.
One problem under the radar that deserves a lot of blame is growing income inequalities. Although Social Security was designed to provide a financial base for low-income older workers, the rich seem to benefit the most. The well-to-do have little or no financial constraints when it comes to receiving preventive care, medical treatment, or purchasing prescription drugs. As a result, they largely outlive low-income retirees, while receiving a much larger monthly benefit.
A significant drop in birth rates may also be at fault. The social security program relies on a constant or increasing number of births each year so that there are enough future workers to compensate those who leave the workforce 20 years or more. Recently, birth rates in the United States hit an all-time low, which could threaten to reduce the worker-to-beneficiary ratio.
same immigration – or the lack of it – bears its fair share of responsibility. Just as the program relies on stable birth rates, it also needs a healthy level of net legal immigration to the United States each year. Since migrants to the United States tend to be younger, they will often spend decades in the workforce contributing to Social Security through the payroll tax. But over the past two decades, net legal immigration to the United States has been cut in half.
It’s the awakening of Congress
Regardless of what is to blame for Social Security’s impending cash flow shortfall, the program’s first expected net cash outflow in nearly four decades should be a wake-up call to lawmakers on Capitol Hill at this time. . Social Security and strengthen the program for future generations runs out.
Interestingly, finding solutions to Social Security’s cash flow shortage has not been a problem. Over the past 35 years, we have seen dozens of policy proposals presented that would strengthen the agenda. These proposals revolve mainly around two central ideas.
For Democrats, the main proposal would raise the payroll tax cap, which in 2020 is $ 137,700. This means that all earned income (wages and salaries) between $ 0.01 and $ 137,700 is affected by the payroll tax of 12.4%, while income above this amount is exempt. Joe Biden, Democratic Party presidential candidate has proposed creating a donut hole between the tax cap and $ 400,000 where income would remain exempt, but restoring the payroll tax on income above $ 400,000. In other words, it is a tax increase on the richest 1% of wage earners.
Meanwhile, Republicans are in favor of a gradual increase in the full retirement age from its peak of 67 in 2022 to 70. This would force future generations of retired workers (millennials and Gen Z) to wait longer to receive their full payment, or to accept a larger reduction in their monthly benefits if taking it early. Regardless of their choice, the lifetime benefits paid would decrease, thus saving program money in the long run.
Individually, the two ideas strengthen social security – and as such, neither party is willing to give an inch to find common ground.
But individually, these plans are also flawed. The GOP plan takes decades for any savings to be made, which fails to address the immediate cash flow deficit facing Social Security. Meanwhile, the Democrats’ proposal ignores many of the previously discussed demographic changes that are hurting Social Security. That is to say, tax the rich alone would buy the program for a few more decades.
A bipartite solution that’s what it takes. The question is, how long will it be before lawmakers realize this?