Social Security, the program designed to keep Americans financially secure from retirement through the end of their lives, may ironically be nearly the end of its own life span, unless Congress takes action on some significant changes soon.
On August 14, Social Security celebrated its 87th birthday, having been signed into law by President Franklin D. Roosevelt in 1935. In the ensuing years, the traditional American dream of a comfortable retirement was like a three-legged stool that would support them for the duration of their lifetimes: a nice pension from the employer where many had spent the bulk of their career, the money in their personal savings account, and a monthly Social Security check.
Important Areas of Interest with Payroll Taxes and Social Security
A Harsh Reality Check
In reality, that stool is in danger of tumbling for far too many people. Pensions – or working for decades for the same company – are scenarios many have only heard their parents or grandparents talk about. And saving for retirement has been challenging. That leaves Social Security, the future of which looks something like this:
- In the not-at-all-distant future, Social Security expects to owe more money in benefits than it collects in revenue. While the program has trust funds to make up the difference, once those are depleted, benefit cuts will be inevitable.
- The time frame for this to happen? According to sources including the AARP, the Social Security Administration will start drawing on its trust funds this year and, absent any major changes, they will run dry in 2034.
Payroll taxes are Social Security’s main revenue source. Currently, only the first $147,000 per year earned by any given person is taxed. If lawmakers were to raise or eliminate this cap, it would allow Social Security’s payroll tax revenue to increase, preventing benefit cuts and solidifying the program’s long-term future.
- Businesses would also be impacted, as salaried workers split this tax bill evenly with their employers. This could pose a hardship for many companies, especially smaller ones that tend to operate with a tighter profit margin.
Other options include:
- Raising the full retirement age.
- Allocating benefits based on financial need.
- Means testing – introducing more progressivity in the size of payments, based on wages, wealth, or income.
- Increasing payroll tax rates.
- Cutting benefits for newly-eligible recipients.
- Reducing the cost-of-living adjustment (COLA).
- Changing benefit calculations.
Some have suggested scrapping the entire Social Security program and converting it to individual plans similar to 401(k) retirement programs. President George W. Bush proposed such a plan in 2005, but it was soundly rejected by the American public. Opponents pointed out that such a move would mean program trust funds would be depleted even sooner.
It’s an ever-changing legislative and financial landscape. To help you stay abreast of Social Security, payroll taxes, and other key issues impacting your growing business, contact Key HR today. We are aligned with top provider companies to answer your questions and meet all your payroll and talent management needs.
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- On September 7, 2022
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