Biden criticizes the Trump administration’s handling of social security
The Social Security overhaul sparks Biden’s criticism of service disruption, layoffs and automation as Trump defends change as efficiency.
Straight Arrow News
Social security is an important source of income for millions of Americans, but the program has serious financial difficulties. Costs have increased faster than revenue in recent years, as the aging population grows faster than the workforce. As a result, the trust fund, a financial account that pays benefits, is expected to run out within 10 years.
Specifically, the Congressional Budget Office estimates that the trust fund will be exhausted in 2034. This eliminates one of the revenues (i.e., interest earned in trust fund reserves) and covers only 77% of the scheduled payments. This means that a 23% profit cut will be required in 2035.
Luckily, Washington lawmakers have had years to find a better solution. Here are four Social Security changes that can prevent deep, full benefits cuts.
1. Apply Social Security Payroll Tax to incomes above $400,000
Social Security is primarily funded by dedicated payroll taxes, accounting for 6.2% of wages from workers and employers. However, some income is exempt from payroll tax. Specifically, the maximum taxable revenue limit is $176,100 in 2025. Income exceeding that threshold is not taxed by Social Security.
Importantly, Social Security programs are projected to run a $23 trillion deficit over the next 75 years as they are nervous about changing demographics. However, applying payroll taxes to more income could reduce the deficit. For example, including incomes over $400,000 would eliminate 60% of the ’75 funding shortage, the University of Maryland said.
2. Gradually raise the Social Security Payroll Tax Rate to 6.5% over six years
Under current law, the Social Security payroll tax rate is 6.2% for workers and their employers. But gradually increase that number and eliminate some of the long-term deficits. For example, according to the University of Maryland, an increase of 0.05% annually over six years would eliminate 15% of the 75 funding shortage, which would increase the tax rate by 0.05% per year.
Now that we’ve covered two possible changes, let’s take a step back and take a look at the bigger picture. Basically, there are three ways to solve social security financial problems. (1) Increase revenue, (2) Reduce costs, or (3) Combination of the first two options. The changes discussed so far increase revenue, but two changes reduce profits: However, this is a more subtle cut than the 23% overall boundary reduction following the depletion of the trust fund.
3. Gradually increase the full retirement age to 68 by 2033
Workers are entitled to retirement benefits at age 62, but are not entitled to the full benefit, also known as the Primary Insurance Amount (PIA) up to full retirement age (FRA). Anyone who claims before the age of full retirement will receive less payment. This means you get less than 100% of your PIA.
The FRA is now defined as the age of 67 for workers born after 1960, but increasing the numbers reduces the long-term deficit. For example, according to the University of Maryland, increasing the FRA to 68 years old by 2033 means it applies to workers born after 1965.
4. Reduce benefits for retired workers with incomes in the top 20%
Social Security benefits are determined as the percentage of two bend points. Specifically, income from the 35 highest salary annual work is adjusted to inflation and converted to a monthly figure called the average indexed monthly revenue (AIME) amount. The AIME is then executed via an expression that uses two bend points to determine the PIA for each worker.
Changing the second (highest) bend point eliminates some of the long-term deficits by reducing the profits of high-income people. For example, the University of Maryland estimates that reducing the profits of individuals with incomes in the top 20% could reduce the 11% funding shortage in ’75.
The overall picture is as follows: The four changes I discussed will eliminate 101% of the $23 trillion Social Security funding shortage, preventing a full 2035 benefit cut.
Motley Fools have a disclosure policy.
The Motley Fool is a partner at USA Today, providing financial news, analysis and commentary designed to help people control their financial lives. The content is produced independently of USA Today.
Most retirees with the $23,760 Social Security Bonus are completely overlooked
A miscellaneous fool’s offer: If you’re like most Americans, you’re a few years (or even more) behind your retirement savings. However, a few lesser known “social security secrets” can help ensure an increase in your retirement income.
One easy trick can pay you an additional $23,760…Every year! Once we learn how to maximize Social Security benefits, we can retire with confidence in the peace of mind we want. participateStock AdvisorFor more information about these strategies, see
See “Social Security Secrets”»
