Social Security Benefit Cuts Don’t Add Up
By Daisy Brown, TSCL Legislative Liaison
The claim that Social Security cost-of-living adjustments (COLAs) must be cut to prevent the program’s impending bankruptcy is unlikely to resolve Social Security’s solvency issues. That’s because the numbers don’t add up.
Social Security is projected to fall short around 2034. When that happens, the program is estimated to receive enough revenues to only pay 77% of the benefits of current beneficiaries. But the changes that have been most discussed — cutting COLAs and raising the full retirement age (currently 67) to age 70, won’t completely resolve the shortfalls over the 75-year period that’s typically used as a measure of the sustainability of Social Security financing.
The Social Security Office of the Chief Actuary maintains a page on its website of proposed changes to Social Security. It provides estimates of the amount of program shortfall that each proposed change would resolve. No single change alone would be enough to fix the shortfalls, but there is one that would resolve far more than any of the rest.
Some of the proposed changes won’t even improve program financing right away. The proposal to increase the full retirement age to 70 would apply to people who haven’t retired yet and would very likely be phased in, perhaps by two months per year, over time. That proposal is estimated to decrease the Social Security shortfall over 75 years by just 28%.
On the other hand, cutting COLAs is an immediate cut in program spending. The proposal to eliminate the COLA entirely for individual retirees with incomes higher than $85,000 ($170,000 filing jointly) and to tie the annual calculation to the more slowly growing chained consumer price index for everyone else with lower to middle income would only reduce the Social Security shortfall by 36% over 75 years.
On the other hand, TSCL surveys over the years have found time and again that there is one fix that our survey participants favor — lifting the cap on wages subject to payroll taxes, which is $168,600 in 2024. This one proposal is estimated to fix up to 66% (two-thirds) of Social Security’s shortfall over 75 years — more than cutting COLAs and raising the eligibility age combined.
Applying the Social Security payroll tax to net investment income (such as dividends interest) of those with high incomes is estimated to provide enough revenue to reduce most of the remaining shortfall. TSCL believes that these proposals should be on the table.
Critics of higher payroll taxes argue that higher taxes would leave less for saving and investing. That could affect jobs. Proponents of raising the taxable maximum, on the other hand, point out that cutting Social Security benefits would suck tens of billions out of our economy because almost all Social Security recipients spend every dollar of their benefits on essential goods and services.
TSCL fights to prevent benefit cuts while seeking ways to strengthen program financing and provide more adequate benefits. Please tell us your thoughts about proposals to address Social Security’s solvency. Please take TSCL’s 2024 Senior Survey _ SeniorsLeague.org/2024seniorsurvey.