For years, both current and future Social Security beneficiaries have expressed concern about the program’s stability. Currently, the programme is experiencing a significant financial shortfall, which could result in widespread benefit reductions.
Meanwhile, Vice President Biden just released a projected fiscal year 2023 budget that contains $14.8 billion for Social Security. This is a nearly 14% increase over budget levels allocated in 2021. However, while that increase may assist improve programme services, it may not do much, if anything, to avert future benefit cuts.
Seniors receive superior service.
Biden tried to raise Social Security money last year in order to improve service to elderly. He intends to do the same in 2023.
The additional funds provided to Social Security in his proposed 2023 budget will be used to improve the agency’s services. Specifically, the goal would be to strengthen field offices and expand staff in order to reduce customer support wait times and enable more individuals to receive needed assistance. A portion of the monies would also be used to combat Social Security fraud.
Clearly, these are critical points. However, they overlook a more serious issue: that Social Security is swiftly approaching a point when benefit cuts are a distinct possibility.
Social Security is likely to owe more money in payouts than it earns in revenue in the future years. What is the reason? Payroll taxes are the primary source of money for the programme, and as baby boomers continue to leave the labour market, that cash stream is likely to dwindle (especially with an inadequate number of replacement workers coming in).
Currently, Social Security has trust funds available to it in the event of a revenue deficit. However, once those trust funds run out of money, benefit reductions are almost guaranteed.
Meanwhile, recent forecasts indicate that the trust assets will be spent in just over a decade. As a result, benefit cuts are not a far-fetched possibility, but a reasonably near-term one.
Increasing contributions to Social Security
Legislators have experimented with several methods for funding Social Security. One frequently advanced suggestion is to increase or even eliminate the wage cap on Social Security taxes.
At the moment, incomes over $147,000 are not subject to Social Security taxation. By raising the barrier, the program’s finances might be bolstered.
However, the issue with that suggestion is that Social Security pays a maximum monthly benefit that would possibly have to be increased if workers began paying taxes on a greater portion of their income. And this could result in a situation where an increase in the pay cap is virtually a wash.
Other possible options are being suggested that could serve the critical objective of avoiding benefit reduction. However, an increase in financing for the programme in 2023 is unlikely to resolve that issue. And both current and prospective beneficiaries may need to brace themselves for the likelihood that benefits will be reduced across the board at some point in the future – more precisely, at a time that isn’t all that distant.
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