Social Security: Did We Solve That Problem Yet?

 

 

I know it was discussed extensively over the past few years, but is it no longer front-page news because the problem has been fixed? Apparently not. It’s more likely that the nation is suffering from attention deficit disorder and can only think about high gas prices right now.

 

But this problem isn’t going away, nor is the Medicare problem on the verge of resolution.  Both of these programs face long-term funding challenges and waiting another few years to think about them again isn’t going to make their solution any easier.

 

An interesting Web site is maintained by the Center for Retirement Research at Boston College, and included on the Web site is a publication called the “Social Security Fix-It Book.”  There are only a certain number of possible solutions to these problems, and the center has summarized them in 52 clearly written and entertaining pages. The publication begins with basic facts about how Social Security works and then makes the following fairly simple statement: The only two ways to fix the problem are to cut benefits or increase revenues. There is no magic formula that will painlessly make Social Security financially solvent for the indefinite future.

 

There are a couple of ways to cut benefits:

 

  • An across the board percentage benefits cut that affects everyone, including those now receiving benefits.
  • Raising the normal retirement age for full benefits, as has already occurred.
  • Freezing the purchasing power of benefits, which means that future benefit amounts would be lower than under the current law.
  • Freezing the purchasing power, but to a lesser degree for lower income earners.
  • Changing the cost of living adjustment for benefits.
  • Doing nothing and cutting benefits all at once in 2040

 

And, there are a couple of ways to increase revenues:

 

  • Increasing the payroll tax rate today.
  • Raising the cap on earnings subject to Social Security taxes.
  • Financing Social Security with revenues from the federal estate tax.
  • Transferring Social Security’s startup costs (from benefits paid in the early years of the program) to general revenues.
  • Increasing the rate of return on assets held in the Social Security Trust Fund.
  • Waiting until 2040 to raise taxes.

 

What to do? The publication ends by asking these three questions, the answers to which will determine how to fix Social Security:

 

  • Do we want to keep benefits about where they are now?  If so, how should the burden be shared?
  • Do we want to keep taxes about where they are now?  If so, how do we cut benefits?
  • Finally, should each generation pay about the same tax and get about the same benefits?

 

Robert H. Louis

Saul Ewing

http://www.saul.com/

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Explore posts in the same categories: Robert H. Louis, Trusts and Estates

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