Social Security Benefit Cuts Are Coming: 4 Changes With Bipartisan Support Could Solve the Problem

Social Security has a serious problem. As the baby boom generation enters retirement, the cost of benefit payments is rising faster than income from taxes and trust fund interest. Consequently, the program has run at a deficit every year since 2021, and trustees expect the problem to continue indefinitely until Congress intervenes.

This situation is gradually draining the OASI Trust Fund, the source of Social Security benefits paid to retirees, spouses and survivors. The trustee estimates that the OASI trust fund will be depleted by 2033, at which point continuing income tax revenues will cover 79% of planned benefits. This means a 21% benefit cut could be made automatically over the next decade.

Overall, Social Security faces a $22.6 trillion funding gap over the next 75 years. Congress is well aware of the situation, although lawmakers have so far been unable to ignore differences in political ideology to reach a solution. However, a recent poll from the University of Maryland’s Program of Public Consultation (PPC) suggests a bipartisan solution is possible.

Read on to see four hypothetical changes to Social Security that could eliminate the entire long-term funding gap. It’s important to note that each change enjoys high support among Republicans and Democrats.

1. Impose a payroll tax on wages exceeding $400,000.

Social Security is primarily financed by a special payroll tax, under which workers and employers make a collective contribution of 12.4% of employee salaries. However, in accordance with current legislation, the amount of income subject to taxation is limited. The maximum taxable income limit in 2024 will be $168,600, meaning any wages above that level will not be taxed by Social Security.

One potential solution would be to apply the Social Security payroll tax to all income over $400,000. The change would theoretically eliminate 60% of the long-term funding gap, and the proposal has bipartisan support among voters, with 86% of Republicans and 89% of Democrats supporting the change, according to the University of Maryland PPC.

2. Raise the Social Security payroll tax rate to 6.5% over six years.

The Social Security payroll tax rate is currently 6.2%, meaning employees and employers pay 6.2% of employee wages for a total of 12.4%. But one possible solution could increase the tax rate by 0.05% annually for six years, so that workers and employers would end up paying 6.5% of employee wages, for a total of 13%.

The proposal would theoretically eliminate 15% of the long-term funding gap, and it has bipartisan support among voters: 87% of Republicans and 87% of Democrats support the change, according to the University of Maryland PPC.

It’s important to note that the two changes discussed so far will increase Social Security program revenues, but the next two changes will mean benefit cuts. Whatever changes Congress makes to Social Security in the future, historical precedent suggests they will likely involve a combination of revenue increases and benefit cuts.

3. Gradually raise the full retirement age (FRA) to 68 by 2033.

Workers are eligible for retirement benefits at age 62, but they are not eligible for full benefits, also known as basic sum insuredif they don’t wait until full retirement age start collecting Social Security. By comparison, the full retirement age is 67 for workers born in 1960 or later. Anyone who claims Social Security before full retirement age will have their benefits permanently reduced.

One potential solution would be to raise the full retirement age to 68 by 2033, meaning workers born in 1965 or later would be affected. The change would theoretically eliminate 15% of the long-term funding gap, and it has bipartisan support among voters: 91% of Republicans and 88% of Democrats support the change, according to the University of Maryland PPC.

4. Cut benefits for workers whose income is in the top 20% of the population.

Social Security benefits are determined as a percentage of three bending points. Earnings for your 35 highest-paid years of work are first indexed for inflation and then converted to a monthly average called Average Indexed Monthly Earnings (AIME). Secondly, AIME is launched via formula which uses inflection points to calculate the amount of primary insurance for each employee.

One potential solution would be to change the third (highest) inflection point to limit Social Security benefits to workers with incomes in the top decile (top 20%) of the population. The change would theoretically eliminate 11% of the long-term funding gap, and it has bipartisan support among American voters: 92% of Republicans and 93% of Democrats support the change, according to the University of Maryland PPC.

In conclusion, readers should remember that the solutions I have discussed are entirely hypothetical at this time. However, benefit cuts are inevitable without Congressional intervention, so Americans should be familiar with potential fixes so they understand the extent of Social Security’s funding gap.