Another article recently appeared proclaiming the doom and gloom for future social security payments. Well, at least being officially broke in 2037 – a projection shift of about 20 years (earlier).
Now this is not rocket science. The system uses money from current tax revenues to pay income for current retirees. As long as more money is coming in than going out, no problem! Two main points highlight the issue: employment and demographics – the current high level of unemployment and the high number of people entering retirement.
Here is how Congress has approached the problem in the past: raise the social security tax (mistake 1) and raise the retirement age (mistake 2). President Bush (in 2005) proposed shifting from the current system to a voluntary private account, which received no traction in Congress (mistake 3). Even if so, the transition would be the difficult part of the journey – but shifting to a private account system is not the focus of this post.
Employee and employers pay 9.6% of the first $106,800 of a salary. That means anyone with a salary in the millions only pays social security on the first $106,800. How much additional revenue would go into the social security pot if people paid 1% on the earnings above the ceiling?
By the way, two facts about Congress:
- Members of Congress do pay social security tax on their congressional salary (a common misconception is that they don’t … have been paying since 1984)
- When revenue from social security exceeds payments, Congress spends it on whatever (mistake 4)