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One of the few policies that President Biden and likely Republican nominee Donald Trump agree on is not cutting Social Security. In last year’s State of the Union, Biden was adamant he would “not cut a single Social Security … benefit.” And Trump has promised “you don’t have to touch Social Security” because “our country can be rich again.”
I agree. There should not be cuts to Social Security, but the program must be strengthened.
Last week, the Congressional Budget Office confirmed some sobering estimates: By 2033, the Social Security Trust Fund will be exhausted. If nothing is done, the result would be across-the-board benefits cut — for all beneficiaries — of around 23 percent. That’s about $17,400 less a year for a newly retired couple.
At least some Americans are anticipating those cuts on the horizon: According to a Gallup poll released in December, just half of Americans expect to receive any Social Security benefits when they retire. This fear of an insecure retirement is part of why many Americans remain pessimistic about the economy, even as unemployment remains low and inflation cools.
Any cuts would be devastating. Before Social Security’s inception, over half of elderly Americans lived in poverty; today that number has fallen to around 10 percent, largely because of Social Security providing a major income boost for most seniors.
Social Security amounts to a public savings program. Workers pay in to the retirement program throughout their employment years. Their contributions mostly pay for the benefits owed to the generation above. When they retire, their benefits will be paid by the next generation’s working-age contributions, and so forth. Everyone pays into Social Security, and everyone gets benefits, an intentional design choice that has resulted in its wide support.
But Social Security is progressive, so what someone receives isn’t proportional to what they put in. Workers with lower earnings see a much higher replacement rate than wealthier Americans.
This is an important point to understand. Social Security benefits account for nearly all retirement income for Americans at the bottom of the income distribution. In contrast, these payments are barely a blip for top earners who have many other funds to live on.
An across-the-board benefit cut would fall hardest on those populations who rely on Social Security most. It would be especially unfair to older low- and middle-class retirees who are dependent on Social Security benefits and who have automatically paid into the program what they otherwise would have saved themselves.
As economist Martin Feldstein, a top adviser to Ronald Reagan, pointed out in the late 1970s, Social Security and private savings are substitutes. The more workers accumulate in Social Security wealth, the less they save for retirement in other ways during their working years. That substitution effect is greatest for low- and middle-income workers.
Any cuts to Social Security would be especially harmful to non-White households. My work with Sylvain Catherine suggests 13 percent of the wealth of Black Americans and 16 percent of the wealth of Hispanic households are at risk of disappearing if the trust fund’s looming insolvency is not addressed. For White households, it’s just 7 percent of wealth.
In the next decade, something will have to give. The right way to fix Social Security is to enhance, not detract, from the progressivity of the program. One way to do this is by raising more tax revenue from those at the top. There’s broad public support for this: Ensuring Social Security’s solvency through tax hikes is twice as popular as cutting benefits. Within Social Security’s current structure, that could mean collecting more money from payroll taxes (today, higher earners pay taxes on only the first $168,600 of income they receive), without increasing benefits paid out to the wealthy.
But there is no reason Social Security has to be financed by payroll taxes alone. Tying tax hikes for the wealthy and large corporations to Social Security is a clever way to make them broadly palatable by dedicating the revenue raised to pay for a program that people like. Here’s one example: deciding not to extend Trump’s tax cuts — which disproportionately benefit the very top — will save nearly $3 trillion over the next decade. That would single-handedly generate enough money to keep Social Security solvent for a decade.
Social Security is often heralded as the crown jewel of our social insurance system. With modest adjustments, we can not only save the program for all Americans: We can make it shine even brighter.
How to save Social Security — and make it better
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12.02.2024
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One of the few policies that President Biden and likely Republican nominee Donald Trump agree on is not cutting Social Security. In last year’s State of the Union, Biden was adamant he would “not cut a single Social Security … benefit.” And Trump has promised “you don’t have to touch Social Security” because “our country can be rich again.”
I agree. There should not be cuts to Social Security, but the program must be strengthened.
Last week, the Congressional Budget Office confirmed some sobering estimates: By 2033, the Social Security Trust Fund will be exhausted. If nothing is done, the result would be across-the-board benefits cut — for all beneficiaries — of around 23 percent. That’s about $17,400 less a year for a newly retired couple.
At least some Americans are anticipating those cuts on the horizon: According to a Gallup poll released in December, just half of Americans expect to receive any Social Security benefits when they retire. This fear of an insecure retirement is part of why many Americans remain pessimistic about the economy,........
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