U.S. Social Security is dealing with a severe financial crisis. According to the trustees’ report, solvency, which was estimated to last until 2034, has been reduced by one year. This situation is occurring due to several factors such as the increasing retirement of the Baby Boomer generation, the passage of the Social Security Fairness Act, and the cuts that the government has made in social investment.
All of this has resulted in a cut in SSA benefits, as they have been forced to reduce the amounts of payments to retirees (OASI) and the disabled (DI). Experts are calling for immediate Congressional intervention, because if nothing is done, the consequences will be worse by 2033.
Social Security (SSA)
The Social Security Administration in the United States is the agency in charge of making sure that all citizens have a minimum income and benefits based on their needs. It is responsible for benefits such as SNAP, Medicaid, housing assistance, supplemental security income, retirement and disability benefits. Many Americans depend solely and exclusively on this source of income, making it a vital source.
How is SSA funded?
As in other countries where this type of organization exists, citizens are responsible for financing the Social Security Administration. How? through the payment of taxes on their payroll. Both workers and companies have to pay this tax, which corresponds to 6.2%. Where does this money go? Well, there are two possible destinations; trust funds administered by the U.S. Treasury Department. These funds have different purposes; on the one hand, it is the one that is in charge of covering retiree and survivor benefits (OASI), and on the other hand, the one destined to disability insurance (DI).
Why are funds running out?
The latest annual report from the Social Security trustees does not deal with good news. The prevailing trend seems to be that finances are being depleted at a faster rate than anticipated. The target date was estimated to be 2035, but has been shortened by one year. There are several factors that are causing this situation, which, according to experts, require immediate intervention by Congress. The main factors are:
- Large numbers of Baby Boomers have reached retirement age. This results in more people collecting retirement pensions than active workers, which creates an obvious imbalance.
- Social Security’s passage of the Fairness Act. A law that returns benefits to certain public workers, who are currently entitled to retroactive payments.
- Government cuts in social investment to be used for Defense. The Government believes it is necessary to cut back on social assistance and allocate all that money to the Department of Defense and to help big business.
- Mention is also made of the low birth rate and slow growth of the labor market.
What can be done about it?
The reality is that the situation and the labor market does not produce as many taxes as the funds needed to meet the payment of these benefits. This is leading to an acceleration in spending, so it is estimated that after 2033, Social Security will only be able to pay 77% of the benefits. The trustees insist that immediate Congressional intervention is required in this situation. They have proposed two options to remedy the situation:
- Increase the payroll tax from 2.6% to 3.65% for both workers and corporations.
- Mitigate all benefits by 22.4% permanently.
They explain that lawmakers could vary these figures depending on how the situation progresses, as long as action is taken now. If not, it is estimated that by 2034, beneficiaries will experience a 20% cut in their total benefits, which could be catastrophic for those who live exclusively on that income.
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