The Social Security 'Pyramid Scheme' Is Going Broke: Here's How Congress Can Save It
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Social Security is going broke, and many younger Americans wonder if it will be available when they retire. So, what can be done to save it for current retirees and future generations?
Capitol Hill Republicans are sounding the alarm and insist change is not only long overdue but necessary.
"Just to look at the next 10-year window, for the first time three trust funds go insolvent. The Highway Trust Fund, Medicare, and Social Security," House Speaker Kevin McCarthy recently explained. "So, if nothing happens, they are in debt."
Sen. Bill Cassidy (R) of Louisiana also expressed similar concerns. "This President, no plan. And no plan means that someone who paid into Social her entire life will get a 24 percent cut in the benefits she's receiving when the program goes insolvent in nine years. Biden is 'choosing to do nothing' about Social Security," Cassidy insisted.
The Congressional Budget Office warns that the Social Security Trust Fund will run out of money by 2033 – two years earlier than expected.
The Speaker of the House, and even West Virginia Democrat Sen. Joe Manchin, say Congress must begin negotiations to save it.
But so far, Democrats – including the president – insist Republican reform efforts would destroy the program.
Many Republicans jeered the president during his State of the Union Address when he claimed GOP lawmakers intended to kill the program.
"Some Republicans want Medicare and Social Security to sunset. I'm not saying it's a majority. Anybody who doubts it, contact my office. I'll give you a copy. I'll give you a copy of the proposal. I'm glad," President Biden insisted.
But fact-checkers found that only one Republican – Sen. Rick Scott of Florida – came close to making such a proposal when he introduced legislation requiring all federal programs to sunset within five years. Republicans rejected Scott's proposal.
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Forty years have passed since the last time Congress made meaningful reforms to Social Security. And this time, the shortfall is much larger, making any solution much harder.
So, why do politicians keep kicking the can down the road as the problem gets worse? Andrew Biggs, senior fellow at the American Enterprise Institute, is a former Social Security Administration deputy commissioner.
"Social Security reform involves breaking promises. Those promises maybe should never have been made in the first place, but they were made. And we now have to tell people we can't keep them," Biggs explained. "They have to pay more and get less. Politicians don't like telling people that, and they like to keep telling them you'll pay less and get more."
So, why is the Social Security Trust Fund going broke? Young Voices Commentator Travis Nix pointed out that it's because of how the program is structured.
"Social Security functions like a pyramid scheme in that when you pay your payroll taxes, your money is not just sitting in a lockbox collecting interest. It's paying off the current retirees," Nix explained. "We don't have enough working young people right now to keep up with our aging population. So, Social Security will run out of money earlier than we thought."
And Biggs believes the payouts are too much for those who could afford to pay for their retirement without relying on the government.
"Social Security is expensive today because it provides increasingly generous benefits to middle- and upper-income people who, let's face it, could save for retirement on their own," he said.
Someone making $100,00 annually throughout their career will draw over $42,000 annually from Social Security.
Nix said Social Security was intended to be a short-term pension plan for Americans.
"One of the biggest things lawmakers should do is return Social Security to what it was when it started in the Great Depression, which was that social safety net for lower income seniors who had just lost everything in the Great Depression," he said. "So, they need to have an income, a cap on Social Security, a flat benefit program that caps the amount of money that people can get out of it around $15- to $20,000."
GOP presidential candidate Nikki Haley proposes raising the retirement age for benefits recipients. Some economists and politicians have suggested delaying early benefits until 64 instead of 62 and adjusting the full retirement age to 68.
Others suggest raising the highest payroll tax level beyond the current 12.4% rate. Nix opposes that idea.
"What raising the payroll tax would do is for some of the best workers in our economy are our doctors, our innovators, our inventors, people with tax rates at around 70%. So every dollar they made above $150,000 would be taxed at 70%. So, 70 cents out of every dollar would go to the government," he explained.
During the 2000 Presidential Campaign, Republican candidate Steve Forbes proposed allowing workers to invest a portion of their Social Security payroll tax in the stock market. He said it would lead to greater financial returns. Critics called the idea risky, claiming that people would be gambling away their retirement.
Biggs believes a better solution is having the government require the private sector to offer retirement accounts.
"I think setting up retirement accounts for everybody outside of Social Security, so everyone is offered a retirement plan and is automatically enrolled in them. That's a way of getting people saving for retirement in a way that's not coercive to them, but it's also much cheaper to the government," he said.
Regardless of the solution, Capitol Hill Republicans and even some Democrats say they must act to save Social Security sooner rather than later.
"The sooner we get this all, the easier it will be. They don't get solved by one side saying we're never going to cut benefits, another side saying we're never going to raise taxes. Everybody needs to put their cards on the table, get in a room and start talking," Biggs insisted. "That's how we've fixed these things before, and that's how we'll do it in the future."
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