These Are the 6 Social Security Changes Americans Want to See – AOL
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Social Security is currently facing a shortfall of nearly $23 trillion over the next 75 years, according to the latest Trustees Report. The latest estimates suggest the program’s trust funds will be depleted in less than a decade. The worst-case scenario would see benefits slashed by nearly one quarter, though this isn’t likely.
Government officials have been throwing out ideas for how to increase Social Security’s funding for years. Nothing has gained traction yet, though we can expect these proposals to increase in number and in urgency as we near the trust funds’ depletion date.
It’s a tricky situation because someone will get stuck with the bill. But a recent National Academy of Social Insurance (NASI) survey suggests there is a way forward that would not only eliminate the funding shortfall, but also provide some much-desired improvements to the program. Overall, more than four in five survey participants were in favor of a “preferred package” that included the following six Social Security changes.
The most popular option by far involved creating a donut hole for Social Security payroll taxes. Currently, you pay taxes on the first $176,100 you earn in 2025. Anything over this amount isn’t subject to benefit taxes, but also doesn’t count toward your benefits in retirement.
The proposal involved leaving the current $176,100 cap as is, barring annual adjustments for inflation. Income between $176,100 and $400,000 wouldn’t be subject to tax, but anything over $400,000 would. Eventually, as the current cap on payroll taxes increases, the donut hole would be eliminated — probably around 2048.
It’s easy to see the strategy’s appeal for ordinary Americans, most of whom never reach the cap on Social Security earnings. But this is unlikely to go over well with high earners, especially because the proposal calls for increased Social Security taxes on these workers with no additional Social Security benefits in retirement.
To be clear, no one wants to lose more of their income to taxes. But higher taxes are likely to be a part of the ultimate fix for Social Security. As far as tax increases go, the one the NASI survey proposed would be relatively small.
The current Social Security payroll tax rate is 12.4%, split evenly between employee and employer. Self-employed individuals pay both parts, but they get a deduction for half the self-employment taxes they pay.
Increasing the tax rate from 6.2% to 7.2% for employees and employers would cost traditionally employed workers just 1% more per year. That would cost someone earning $50,000 annually about $42 more per month.
The Social Security Administration issues cost-of-living adjustments (COLAs) in most years to help benefits keep pace with inflation. But the index the government uses to calculate these COLAs actually looks at the spending habits of wage earners in urban areas and excludes retirees.
This has long been a sore point with retirees, who feel they’re being shortchanged by COLAs. Many want the government to base COLAs on the Consumer Price Index for the Elderly (CPI-E), which looks specifically at senior spending. This would result in larger COLAs in most years, according to The Senior Citizens League (TSCL).
However, it would also increase the program’s expenses. So a change like this, while possible, would likely come alongside other changes aimed at increasing funding for the program.
Your Social Security benefit is based on your average monthly earnings during your 35 highest-earning years, adjusted for inflation. You can still claim a benefit with a shorter work history, but you’ll have zero-income years factored into your calculation. Even one of these can drastically reduce your benefits.
Those who step back from the workforce to care for young children — often women — typically receive much smaller Social Security benefits than those who remain in the workforce without these interruptions.
The NASI survey’s preferred package of Social Security changes i
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