Stoneage Ramblings

By John R. Stone

Recently the Social Security Administration said that the system is likely able to pay benefits for its major program OASI (Old Age and Survivors Insurance) through 2033.

After the expenses of that program will exceed the income.

Actually, the expenses of the program exceed the income now. Benefits are now paid through payroll taxes with the shortfall covered by what is called the Social Security Trust Fund.

For a number of years Social Security payroll taxes have exceeded expenses. So the Federal government could use the excess to cover expenses. The excess was used to purchase Treasury Bonds so the principal and interest would come back to the Trust Fund.

Up to about a decade ago the SSA was buying Treasury Bonds. Since that time the SSA has been cashing in bonds to make up the difference between SSA tax income and benefits paid.

According to the most recent fiscal year’s report from SSA, which ended Sept. 30, 2024, the trust fund is now about $2,630 trillion, down from $2,699 trillion at the start of the year.

Total expenses for the year were $1,530 trillion, making it the most expensive program in the Federal government. The Defense Department and interest on the nation’s $34 trillion national debt (which includes that money due Social Security), which are the next two most expensive programs, run around $900 billion a year each.

Yet Social Security is mostly funded by payroll taxes. Each individual pays a tax which is matched by his or her employer and sent in to Social Security. It comes out of a person’s paycheck and goes to the SSA regardless of whether or not a person pays income tax.

Income for fiscal year 2024 for SSA was $1,461 trillion. Overall government income for the year was $4,919 trillion while overall expenses for the year were $6,752 trillion.

So, in a nutshell, SSA cashes in the bonds it needs to pay benefits when payroll taxes are not sufficient to pay benefits. And current projections are that the program is good into 2033.

The issue is what happens after 2033. If the program has to fund itself from then current revenues it would result in a benefit cut of around 21%.

There are ways to avoid that. One mentioned by some is to increase the retirement age. This would mean people would collect benefits later in life and, what they don’t like to mention, collect less money between retirement and death.

Another would be to make fewer adjustments in payments. For example, benefits are adjusted each year for inflation, the benefit for this 2025 will increase 2.5%.

What nobody seems to want to talk about is increasing the payroll tax. A relatively minor adjustment each year for the next decade could probably keep Social Security sound.

With a person currently paying a 6.2% tax on income (for both Social Security and Medicare) that would mean just one percent increase, just over $1 out of every $100 dollars, for each program. Employers would match that. Phase that in over 10 years so the annual increase would feel negligible. And that would be for a lifetime guaranteed benefit.

Social Security was never intended to be a full retirement program, it was intended, and is, a supplement to one’s savings for retirement. And, yes, I’m a Social Security recipient. But, what happens in 2033 probably won’t affect me, statistically I’ll most likely be gone.

I know there always seems to be a big fight over taxes. What’s wrong with making a program pay for itself? This is especially true for a program where the tax goes back to the taxpayer at a time in his or her life when one is less able to work.