Congress Has 6 Years to Save Social Security. Here’s What’s at Stake

The Social Security Trustees’ latest update came out in June, and the news wasn’t fantastic. The Trustees confirmed that Social Security’s Old-Age and Survivors Insurance Trust Fund is expected to run out of money by 2032. At that point, Social Security will only have enough incoming revenue to pay 78% of scheduled benefits.

For the average retiree today, losing 22% of their monthly Social Security check could amount to more than $450 per month. That’s a problem, because the nonpartisan Senior Citizens League says that as it is, the typical monthly Social Security benefit is not enough to cover basic retiree living expenses.

Of course, that six-year window also gives lawmakers time to save Social Security from benefit cuts. Here are some of the more popular solutions on the table.

1. Raise payroll taxes broadly

Workers and employers currently each pay a 6.2% tax rate on wages to fund Social Security. Some lawmakers suggest raising that tax rate across the board.

The upside is clear — more revenue for Social Security, guaranteed. But the downside is less obvious.

On a basic level, it’s not a secret that the burden of higher taxes could hurt individuals and employers. But it’s hard to know what broad economic backlash might ensue.

If workers are forced to reduce their spending to make up for higher taxes, it could stunt the economy’s growth. And if employers are forced to reduce headcounts to make up for higher payroll tax costs, it could spur an unemployment crisis and limit job growth.

2. Raise taxes for higher earners only

Social Security has a wage cap that limits the amount of income that’s taxed to fund the program each year. The current wage cap is $184,500, and it typically rises every year.

Raising taxes on higher earners only could limit the broad economic impact of tax hikes. But it also raises the question of what to do about Social Security’s current benefits formula.

Social Security has a maximum benefit it pays retirees that’s tied to the program’s wage cap. If that wage cap is lifted or eliminated, it’s unclear as to whether the possibility of larger benefits would exist for higher earners.

As it is, some lawmakers already want to cap Social Security benefits in retirement to $50,000 a year for the wealthy. Imposing a benefit cap without a wage cap, however, changes the nature of Social Security, turning it into more of a welfare program.

3. Raise full retirement age

Full retirement age (FRA) is when Social Security recipients can collect their benefits without a reduction. FRA is 67 for people born in 1960 or later, but some lawmakers want to see FRA moved up a few years.

The logic is simple. Moving FRA back keeps people in the workforce longer. That generates more revenue for Social Security, allowing the program to keep up with its financial obligations.

The problem, of course, is that a later FRA sentences workers to longer careers. For people who do physical work, that’s not always possible. And if certain workers are forced to take benefits early, this solution effectively becomes a backdoor Social Security cut.

The clock is ticking down

All told, lawmakers have different options for preventing Social Security cuts. And given that millions of retirees depend on those benefits, there’s clearly a lot at stake.

At this point, though, Congress can’t just sit back and wait. The changes above, or other changes, may need to be implemented over time. And while six years might seem like a ways off, it’s actually a fairly short window to stave off Social Security cuts and prevent a massive retiree poverty crisis.