It took a robust rate of inflation to put Social Security back in the national headlines. The announcement of an 8.7 percent cost-of-living increase for Social Security recipients, the largest since an 11.1 percent increase in 1981, acknowledges the impact rising prices are having on many older Americans, with the COLA especially important to the hundreds of thousands who rely on Social Security for at least 90% of their income.
But the story of this year’s COLA is not limited to how it will ease the pressure of inflation on many older Americans. How this increase is paid for, and the impact it will have on the future of Social Security, is another chapter in the saga of how the United States is dealing with our changing demographics.
Some of the funding for the COLA will come from the payments workers make into the Social Security Trust Fund. Next year workers will pay a tax on the first $160,200 of their income, up from $147,000 this year.
Even that kind of increase is not going to fully fund an 8.7 percent COLA, however. The end result is Social Security will need to tap further into the Trust Fund to pay benefits, meaning the projection of when the Trust Fund will be exhausted is likely to be moved up when the Social Security trustees issue their annual report next year.
I wrote earlier this year about how critical the outcome of the U.S. Senate race in Pennsylvania will be to the future of Social Security. That was before inflation increased the urgency for action on this issue.
But inaction is the approach the U.S. Congress has taken on Social Security since President George W. Bush’s privatization plan was scuttled in 2006. And further inaction continues to be the default policy option. The consequences of doing nothing, however, will result in Social Security benefits being slashed across-the-board by 23 percent a decade from now.
For the majority of older Americans who rely on Social Security for at least one-half of their income in retirement, such a cut could be devastating. And as more and more Americans reach retirement age without an alternative source of retirement income, the problem will be exacerbated.
When pressed about the future of Social Security, the Republican answer continues to be their old standard about how non-governmental institutions could make the program sustainable over the long term. Let’s talk about that, because Republicans and their allies in the insurance world are moving closer to their goal of privatizing Medicare through the Medicare Advantage system.
A recent New York Times report revealed how insurers have exploited the Medicare Advantage to rake in billions in profits. The selling point to Medicare beneficiaries? Extras like gym memberships and coverage of services not a part of standard Medicare.
The billions in profits are undermining the financial stability of Medicare. And should Republicans and their allies in the financial world accomplish their goal with Social Security, there is little doubt financial managers will be offering beneficiaries extras like gift cards to Olive Garden or (even worse) Bitcoins in exchange for the opportunity to manage their Social Security payments – and to siphon money from the Trust Fund.
This year’s Social Security cost-of-living increase is an absolute necessity for millions of older Americans. But maintaining Social Security for future generations is also an absolute necessity.
What should happen?
I’ve written in the past we need to eliminate the income limit on the payroll tax. Those words still hold true.
The income limit is in place to ensure future benefits are commensurate with the amount contributed to the program without those benefits becoming too large. Despite this effort to ensure fairness to all workers, Republicans are still fond of calling Social Security an “entitlement,” falsely implying beneficiaries did not earn their monthly checks through contributions during their working years.
Perhaps it is time to call their bluff. If the opponents of Social Security insist on labeling it an entitlement, let’s take a small step in that direction.
The distribution of income in the U.S. now favors the fabulously wealthy more than at any point in recent history. Making the rich pay payroll taxes on their full income but limiting their future benefits to the maximum paid today would shore up Social Security’s finances and aid in the effort to close the wealth gap that plagues our society.
The outcry from defenders of the wealthy about such a change would be loud. But given all the advantages the rich have in our society, these complaints should fall on deaf ears, because this is how Social Security can be saved in its present form – and how future generations can be assured the program will be there to help them as they age.
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