A new Social Security proposal by US senator Patty Murray aims not only to modernise the benefits scheme but also to fix its long-term funding gap.
According to The Motley Fool, Social Security, currently paid out to more than 42 million retired US workers, will experience a US$12.5 trillion budget shortfall between 2034 and 2091. According to a 2017 report from the Social Security Board of Trustees, by 2022, more will be paid out in benefits than is generated in revenue. By 2034, the roughly $3 trillion in excess cash currently held by the scheme is forecast to have completely run out.
Three out of five of today's retirees rely on Social Security for at least half of their monthly income, and most future retirees are expected to need it too. But the Trustees' report suggests that benefits could be cut across the board by up to 23% in order to preserve its solvency until 2091. Although Social Security, which is mainly funded by a payroll tax, legally cannot go bankrupt, it does not mean the current situation is sustainable.
But a new proposal, laid out by Democratic senator Patty Murray, is intended to modernise the scheme for women, children, people with disabilities and survivors. At the same time, the aim is to ensure that those who can afford to pay more do so in order to cover the long-term funding gap. The Stronger Safety Net (SSN) Act makes four key proposals:
- Improve benefits for divorced spouses to ensure that those over 62 who were married for at least five years would qualify, with a 10% step-down for each year below 10;
- Enhance benefits for widows and widowers by awarding the surviving spouse 75% of their own work benefit and the primary insurance amount of the deceased spouse. This alternative benefit, which would start in 2019, would be paid out if it is higher than the amount survivors receive under the current law;
- Extend benefits for children of retired, disabled or deceased workers so that full-time students up to the age of 23 are eligible to receive them;
- Impose a 2% payroll tax on earned income in excess of US$400,000. From 2018, a payroll tax of 12.4% applies only to earned income between $0.01 and US$128,400, which means that any income above US$128,400 is not subject to the Social Security payroll tax.
As Republicans still hold a majority in the legislative branch of government though, it is considered unlikely the proposal will pass.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
A new Social Security proposal by US senator Patty Murray aims not only to modernise the benefits scheme but also to fix its long-term funding gap.
According to The Motley Fool, Social Security, currently paid out to more than 42 million retired US workers, will experience a US$12.5 trillion budget shortfall between 2034 and 2091. According to a 2017 report from the Social Security Board of Trustees, by 2022, more will be paid out in benefits than is generated in revenue. By 2034, the roughly $3 trillion in excess cash currently held by the scheme is forecast to have completely run out.
Three out of five of today's retirees rely on Social Security for at least half of their monthly income, and most future retirees are expected to need it too. But the Trustees' report suggests that benefits could be cut across the board by up to 23% in order to preserve its solvency until 2091. Although Social Security, which is mainly funded by a payroll tax, legally cannot go bankrupt, it does not mean the current situation is sustainable.
But a new proposal, laid out by Democratic senator Patty Murray, is intended to modernise the scheme for women, children, people with disabilities and survivors. At the same time, the aim is to ensure that those who can afford to pay more do so in order to cover the long-term funding gap. The Stronger Safety Net (SSN) Act makes four key proposals:
- Improve benefits for divorced spouses to ensure that those over 62 who were married for at least five years would qualify, with a 10% step-down for each year below 10;
- Enhance benefits for widows and widowers by awarding the surviving spouse 75% of their own work benefit and the primary insurance amount of the deceased spouse. This alternative benefit, which would start in 2019, would be paid out if it is higher than the amount survivors receive under the current law;
- Extend benefits for children of retired, disabled or deceased workers so that full-time students up to the age of 23 are eligible to receive them;
- Impose a 2% payroll tax on earned income in excess of US$400,000. From 2018, a payroll tax of 12.4% applies only to earned income between $0.01 and US$128,400, which means that any income above US$128,400 is not subject to the Social Security payroll tax.
As Republicans still hold a majority in the legislative branch of government though, it is considered unlikely the proposal will pass.
Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.
