According to a report released by the Social Security and Medicare trustees, the nation’s retirement funds will not be able to continue distributing full payments through 2033, and elderly Americans will start receiving reduced benefits – unless Congress acts to shore up the program.
The trustees of Social Security and Medicare — who include the Cabinet secretaries of labor, health and human services, and the Treasury, as well as the Social Security commissioner — forecast that the Social Security trust fund will run out in 2033, at which point retirees will see benefits cut by 21 percent.
“Social Security is the most far-reaching and important act of social and economic justice that the United States has ever enacted, and shoring up these depleted Social Security reserve funds should be an immediate national priority,” said Lisa McCormick, a leading advocate for eliminating the cap on income subject to FICA taxation.
For decades, the government has forecast that the Social Security Trust Fund will eventually become insolvent: With the aging of baby boomers, there are more retirees relative to workers paying Social Security taxes.
The report warned of automatic benefit cuts starting in 2033 because the program is paying out more than it takes in, which will eventually exhaust its trust fund.
The deficit between what’s expected to be collected versus what’s being paid out is about 3.5 percent, according to the 2024 report. Possible solutions for closing that financing gap include the politically treacherous choices of raising the payroll tax, cutting benefits, a combination of those two, or taking on more public debt to prop up the system.
Social Security operates on less than one percent of its annual benefit payments. This is extremely low – much lower than private insurance companies. For instance, Allstate operates on 19 percent of its annual benefit payments, and Liberty Mutual operates on nearly 24 percent of its annual benefit payments.
Americans become eligible to receive benefits at age 62, but those checks will be smaller than what recipients would get if they waited until what the government defines as “full retirement,” which falls between 66 and 67, depending on the year of birth.
The monthly check that one gets once he or she hits that milestone is an indexed benefit that the Social Security Administration calculates by adjusting eligible earnings by averaging out the fat and lean years.
“Lawmakers could choose (1) to increase revenues to the OASI Trust Fund, (2) to reduce cost through modification of the OASI program benefit levels or eligibility requirements, or (3) to use a combination of methods to strengthen the financial condition of the OASI Trust Fund,” said the trustee’s report.
McCormick has been lambasting Congress for its failure to protect the retirement security of millions of Americans each time the Social Security Administration reported that trust funds will be depleted and retirees will get reduced monthly payments because there is a simple and fair answer.
“Despite warnings from the Social Security Administration from six months ago that trust funds are on track to be depleted within a decade, Congress has yet to take the necessary steps to address this looming crisis,” said McCormick, who made Social Security an issue as a candidate for US Senate in the 2018 Democratic primary election.
“On March 31, 2023, the Social Security Board of Trustees released an annual report that painted a bleak picture of the program’s future,” said McCormick. “Another year of inaction has followed decades of putting off the safety and security of Americans who deserve the confidence that they will live in dignity during their twilight years.”
McCormick has been a vocal proponent of “scrapping the cap” on taxable earnings, a move that would require very wealthy Americans to contribute to Social Security at the same tax rate as the rest of the population.
“The way to fix this problem is by eliminating the cap on taxable income. This action alone would put Social Security on a solid financial foundation, ensuring that benefits remain secure, even if they are increased or the retirement age is lowered,” said McCormick. “If we ‘scrap the cap’ very wealthy Americans would contribute to Social Security at the same tax rate as the rest of us and the system would again be financially stable.”
“While 94 percent of U.S. workers shell out payroll taxes on every dollar in their paycheck, the very richest Americans avoid contributions to Social Security on most of their money due to the program’s cap on taxable earnings,” said McCormick.
McCormick said that if underpaid full-time working Americans can struggle with economic pressures, it seems obvious that Los Angeles Lakers star player LeBron James could afford to pay the same rate of Social Security taxes as every American who makes less than $168,600.
“LeBron James is paid over $40 million to play 82 basketball games each year. LeBron’s FICA tax rate is 0.021 percent. That isn’t really fair,” said McCormick. “LeBron is done paying into Social Security during the first quarter of the first game. For the rest of that game, the next 81 games, right through baseball, football & even hockey season, he doesn’t pay another dime.”
“Americans could add $475 billion in revenue to the Social Security trust fund each year by making everyone with income over $170,000 –the rich– pay the same tax rate as everyone with income up to $168,600 –you,” said McCormick, who earned four of ten votes cast in the 2018 Democratic primary election against US Senator Bob Menendez.
Social Security currently provides benefits to more than 66 million recipients. The Congressional Budget Office (CBO) estimates that about 78 million people, or about 20% of the U.S. population, will receive benefits from the Old-Age and Survivors Insurance (OASI) Trust Fund in 2032.
The CBO and the trustees of the Social Security and Medicare trusts have both raised alarms about how soon Social Security will become “insolvent.” Insolvency in this context refers to the point at which the trust fund will be depleted, and payments would come solely from income generated by payroll tax and income tax on benefits.