A report suggests that the Social Security trust fund in the United States, known as the Social Security trust fund, may be depleted within nine years, posing one of the challenges the next U.S. president must face.
According to the report’s author, Jason Fichtner, Chief Economist of the Bipartisan Policy Center, “in nine years, our major retirement programs will face bankruptcy concerns, which could lead to a reduction of approximately 20% in benefits for everyone,” he told CNBC.
The report states that the trust fund used by the U.S. Social Security Administration to pay retirement benefits is projected to be exhausted by 2033. By then, individuals may only be able to receive 79% of their Social Security benefits.
A recent CNBC poll found that the majority of Americans consider Social Security to be one of the “most important” or “very important” issues, which will impact their voting decisions in November.
Both presidential candidates – former President Trump and Vice President Harris – have vowed to protect Social Security benefits but have not yet provided specific details.
Social Security benefits are distributed by the Social Security Administration (SSA). Nearly 68 million Americans, including retired seniors, disabled individuals, and survivors of deceased beneficiaries, receive Social Security benefits every month.
Many Americans have little to no savings upon retirement, no 401(k) pensions, and minimal investments. Aside from their monthly Social Security checks, they have little other sources of income.
According to analysis by the AARP, approximately one in seven individuals aged 65 and older who receive Social Security benefits rely almost solely on those benefits for their livelihood.
Currently, the average monthly Social Security benefit for the typical American retiree is $1,920. Sandy Markwood, CEO of USAging, told The Wall Street Journal that this money is not as sufficient as before, with inflation and rising rent prompting more elderly individuals to seek assistance from other community support organizations.
The report from the Bipartisan Policy Center projects that by 2033, the average monthly Social Security benefits for seniors is expected to decrease by approximately $403.
Over 11,200 Americans turn 65 every day and are eligible to apply for Social Security benefits. As more retirees begin claiming Social Security, there are not enough individuals contributing to the system to offset the increased payouts.
When such shortages occur, the Social Security Administration turns to its trust fund – setting aside funds to help cover benefit payments and other administrative costs.
The Social Security fund has been running a deficit for years. During the 2020 election, a report from the Bipartisan Policy Center projected that the trust fund paying retirement benefits would be depleted within 10 years, even under the most optimistic economic forecasts, it may run out of funds by 2034.
During the campaign, Trump proposed a plan aimed at allowing retirees to keep more of their Social Security funds – eliminating taxation on benefits.
“Seniors should not be taxed on Social Security,” Trump wrote on his social media platform “Truth Social” on July 31.
A recent ABC News/Ipsos poll found that 85% of voters support this idea.
Currently, retirees are required to pay federal income tax on up to 85% of their Social Security benefits based on their income. The amount of tax paid is based on a formula called “combined income,” which includes adjusted gross income, tax-free interest, and half of Social Security benefits.
For married couples with a total income between $32,000 and $44,000, they must pay taxes on half of their benefits. If their income exceeds $44,000, they must pay taxes on 85% of their benefits.
For individuals with incomes between $25,000 and $34,000, they must pay taxes on 50% of their benefits. Those with incomes above $34,000 must pay taxes on 85% of their benefits.
The Committee for a Responsible Federal Budget states that eliminating taxation on Social Security benefits would push back the trust fund’s bankruptcy date by over a year.
Howard Gleckman, a senior researcher at the Urban-Brookings Tax Policy Center, stated that the median household income for retirees is around $50,000, meaning “the vast majority” of people pay very little or even no taxes to receive Social Security benefits.
Their research found that exempting benefits taxation primarily benefits those with incomes between $63,000 and $200,000.
Harris’ campaign team’s economic plan promises to “strengthen Social Security and Medicare by making corporations and the wealthiest Americans pay their fair share of taxes so that these essential programs remain solvent in the long term.”
This follows Biden’s policy direction, as he has also called for higher-income individuals to pay more for these programs in budget proposals and State of the Union addresses.
However, she has not disclosed further specific details.
In terms of Social Security tax contributions, employees and employers each pay 6.2% of wages, with a maximum tax rate of 12.4% (12.4% for self-employed individuals).
For 2024, the portion of wages subject to Social Security tax cannot exceed $168,600. If wages exceed $168,600, no Social Security tax is applied to that portion. For example, a person earning $200,000 annually would only pay Social Security tax on the standard $168,600, with the remaining $31,400 exempt.
The cap on Social Security tax changes annually based on the National Average Wage Index, trending to increase year by year.
Democrats have proposed to reimpose these taxes on individuals earning over $400,000 or $250,000, and potentially increase taxes on investment income. They argue that these tax increases will boost the solvency of the Social Security program while making certain benefits enhancements possible.
Whether it is Trump or Harris, their proposed tax cuts and welfare measures would require tens of billions of dollars, potentially exacerbating the federal deficit in the United States. Currently, the U.S. annual deficit is approaching $2 trillion.
Given that the depletion date of the Social Security fund is fast approaching, any reform measures must be gradually implemented quicker. Retirement income issues for Americans will be a problem that the new president will need to address during their term and cannot be further delayed. However, regardless of who is elected, the extent of the new president’s achievements in Social Security remains to be seen.
Passing Social Security reforms require 60 votes in the Senate, therefore bipartisan agreement from lawmakers is crucial.