[US] Social Security hurt by rising income inequality

US Social Security is headed to a crisis point in 2034, when its primary trust fund is projected to become insolvent, potentially resulting in significant benefits cuts, Yahoo reports.

Demographics are a key part of the problem, as the nation's huge number of baby boomers hit retirement and fewer young workers contribute to the system. However, according to one expert, rising income inequality also plays an important role in the funding crunch.

Stephen Goss - chief actuary of the Social Security Administration - reportedly told attendees at a conference earlier this month that “unanticipated economic setbacks,” including the Great Recession, together with the rise of income inequality starting in the 1980s, explain around 80 per cent of the program’s shortfall. 

As a result of these factors, the adjustments applied to Social Security by a committee led by economist Alan Greenspan in 1983 - including raising the retirement age and making benefits taxable - have not succeeded in maintaining solvency in the program for as long as originally projected.

Mr Goss said that incomes for the top 6 per cent of earners rose by 62 per cent between 1983 and 2000. The incomes of the bottom 94 per cent rose by just 17 per cent, meaning that most income growth occurred among high earners, who do not pay Social Security taxes above a certain level. 

In 1983, the top income subject to the payroll tax - the Social Security Wage Base - was $35,700 for individuals; in 2000, it was $76,200; it stands at $160,200 in 2023.

Due to this, the share of total income subject to payroll taxes fell from roughly 90 per cent in the early 1980s to 82 per cent in 2000.

“This is a massive change in the distribution of earnings, and that’s what caused us to have a much smaller share of all covered earnings falling below our taxable maximum,” Mr Goss said, according to MarketWatch reporting. “This is a major component of the shortfall we’ve had.”

Source: Yahoo

(Link and quotes via original reporting)

US Social Security is headed to a crisis point in 2034, when its primary trust fund is projected to become insolvent, potentially resulting in significant benefits cuts, Yahoo reports.

Demographics are a key part of the problem, as the nation's huge number of baby boomers hit retirement and fewer young workers contribute to the system. However, according to one expert, rising income inequality also plays an important role in the funding crunch.

Stephen Goss - chief actuary of the Social Security Administration - reportedly told attendees at a conference earlier this month that “unanticipated economic setbacks,” including the Great Recession, together with the rise of income inequality starting in the 1980s, explain around 80 per cent of the program’s shortfall. 

As a result of these factors, the adjustments applied to Social Security by a committee led by economist Alan Greenspan in 1983 - including raising the retirement age and making benefits taxable - have not succeeded in maintaining solvency in the program for as long as originally projected.

Mr Goss said that incomes for the top 6 per cent of earners rose by 62 per cent between 1983 and 2000. The incomes of the bottom 94 per cent rose by just 17 per cent, meaning that most income growth occurred among high earners, who do not pay Social Security taxes above a certain level. 

In 1983, the top income subject to the payroll tax - the Social Security Wage Base - was $35,700 for individuals; in 2000, it was $76,200; it stands at $160,200 in 2023.

Due to this, the share of total income subject to payroll taxes fell from roughly 90 per cent in the early 1980s to 82 per cent in 2000.

“This is a massive change in the distribution of earnings, and that’s what caused us to have a much smaller share of all covered earnings falling below our taxable maximum,” Mr Goss said, according to MarketWatch reporting. “This is a major component of the shortfall we’ve had.”

Source: Yahoo

(Link and quotes via original reporting)