There have been suggestions to privatize Social Security. In his 2005 State of the Union address, President Bush discussed the program's potential bankruptcy.
But Social Security will not go broke any time soon. At the end of 2014, the Trust Fund was valued at $2.8 trillion, up $25 billion from 2013:
According to the Social Security Trustees, who oversee the program and report on its financial condition, program costs are expected to exceed non-interest income from 2010 onward. However, due to interest (earned at a 3.6% rate in 2014) the program will run an overall surplus that adds to the fund through the end of 2019. Under current law, the securities in the Trust Fund represent a legal obligation the government must honor when program revenues are no longer sufficient to fully fund benefit payments. However, when the Trust Fund is used to cover program deficits in a given year, the Trust Fund balance is reduced. By 2034, the Trust Fund is expected to be exhausted. Thereafter, payroll taxes are projected to only cover approximately 79% of program obligations.
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However, even right-leaning politicians have been inconsistent with the language they use when referencing Social Security. For example, Bush has referred to the system going "broke" in 2042. That date arises from the anticipated depletion of the Trust Fund, so Bush's language "seem[s] to suggest that there's something there that goes away in 2042." Specifically, in 2042 and for many decades thereafter, the Social Security system can continue to pay benefits, but benefit payments will be constrained by the revenue base from the 12.4% FICA (Social Security payroll) tax on wages. According to the Social Security trustees, continuing payroll tax revenues at the rate of 12.4% will enable Social Security to pay about 74% of promised benefits during the 2040s, with this ratio falling to about 70% by the end of the forecast period in 2080.
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In 2011 and 2012, the federal government temporarily extended the reduction in the employees' share of payroll taxes from 6.2% to 4.2% of compensation. The resulting shortfall was appropriated from the general Government funds. This increased public debt, but did not advance the year of depletion of the Trust Fund.
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So, the fund will remain solvent for decades. But yes, problems may show up eventually. What to do about them?
Most importantly, fix income inequality which remains so persistent in the US even after the sharp recent gain in income reported by Census Bureau in September:
The U.S. consistently exhibits higher rates of income inequality than most developed nations due to the nation's enhanced support of free market capitalism and less progressive spending on social services.
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The distribution of household incomes has become more unequal during the post-2008 economic recovery as the effects of the recession reversed. CBO reported in November 2014 that the share of pre-tax income received by the top 1% had risen from 13.3% in 2009 to 14.6% in 2011. During 2012 alone, incomes of the wealthiest 1 percent rose nearly 20%, whereas the income of the remaining 99 percent rose 1% in comparison.
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Inflation-adjusted pre-tax income for the bottom 90% of American families fell between 2010 and 2013, with the middle income groups dropping the most, about 6% for the 40th-60th percentiles and 7% for the 20th-40th percentiles. Incomes in the top decile rose 2%.
... Measured from 2009–2015, the top 1% captured 52% of the total real income growth per family, indicating the recovery was becoming less "lopsided" in favor of higher income families. By 2015, the top 10% (top decile) had a 50.5% share of the pre-tax income, close its highest all-time level.
... In 2016, the economists Peter H. Lindert and Jeffrey G. Williamson contended that inequality is the highest it has been since the nation's founding.
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So, some easy fixes come to mind.
First, today everyone pays a 6.2% FICA tax, except there is a cap: One pays only on the first $117,000 of one's earned income. (Investment income is excluded.) This sum is over three times the $38,700 median income of our congressional district. People who earn that much -- the 1% -- pay nothing on the excess. In other words FICA is a regressive tax, such that the wealthier you are, the lower is your effective FICA tax rate on total income. The solution: eliminate the cap, making it a flat tax so everyone pays the same rate on all income.
Another idea: A financial transactions tax. Financial taxes have a long and distinguished history; influential economist John Maynard Keynes was an early advocate for their wider use in the 1930s. According to Labor Notes, taxing each transaction "would cut down on Wall Street speculation and produce enough money to make Social Security solvent for the next 75 years—and raise benefits, too."
Finally, eliminate the preferential rate at which long term capital gains are taxed compared to ordinary income.
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