The future of Social Security is under threat, with projections showing that the Trust Fund could be depleted by 2034. Without intervention, Americans could face significant reductions in benefits as early as 2035. Washington lawmakers have several options available to prevent these cuts and ensure the long-term viability of this critical program.
For millions of Americans, Social Security is a lifeline. The program provides essential financial support for retirees, disabled individuals, and surviving family members.
However, due to an aging population and an imbalance between revenue and expenditures, the Social Security Trust Fund is facing a massive deficit. If no action is taken, beneficiaries could see their payments cut by as much as 23% starting in 2035.
Increasing Revenue: A Key Solution
One of the most straightforward ways to address Social Security‘s looming deficit is to increase its revenue. The primary funding mechanism for the program is the payroll tax, which takes 6.2% of wages from both workers and employers.
However, the income cap on this tax leaves higher earners exempt from contributing beyond a certain threshold. In 2025, for instance, the maximum taxable earnings will be set at $176,100.
To address this, some experts propose applying the payroll tax to income above $400,000. According to the University of Maryland, this change would reduce the 75-year funding shortfall by a significant 60%.
Another revenue-generating option is to gradually increase the payroll tax rate. A modest rise of 0.05% per year over six years could eliminate 15% of the funding gap. These adjustments would go a long way toward closing the gap between Social Security’s income and its obligations.
Reducing Costs: A More Complex Approach
While increasing revenue is essential, cutting costs also plays a crucial role in addressing Social Security’s financial challenges.
One proposed change is gradually raising the full retirement age (FRA). Currently, FRA is set at 67 for those born in 1960 or later. Raising it to 68 by 2033 would reduce the program’s long-term deficit by 15%, according to the University of Maryland.
Additionally, reducing benefits for high earners could help reduce overall costs. Social Security benefits are based on a formula that adjusts for income over a person’s 35 highest-earning years. Modifying the formula to reduce benefits for individuals in the top 20% of earners could cut the deficit by 11%.
These two cost-cutting measures, combined with the revenue-increasing options, could fully close the projected $23 trillion funding gap and prevent the drastic benefit cuts set to take effect in 2035.
