Social Security is facing a funding shortfall that could lead to reduced benefits in the next decade if Congress does not take action. According to the program’s trustees, only 83% of combined benefits will be payable by 2035 if nothing is done. The situation may worsen with the passage of the Social Security Fairness Act, which increases benefits for more than 3 million workers who also receive public pensions.
A recent survey conducted by the National Academy of Social Insurance, AARP, the National Institute on Retirement Security, and the U.S. Chamber of Commerce in collaboration with Greenwald Research asked more than 2,200 Americans how they would solve the problem. The results showed that 85% of respondents would prefer benefits to remain the same or increase, even if it means raising taxes. Tyler Bond, research director for the National Institute on Retirement Security, said, “They’re willing to pay more, not to get extra benefits for themselves, but just to close the financing gap to prevent indiscriminate benefit cuts.” Only 15% of respondents said they would prefer tax rates not to increase, even if that means benefits are reduced.
The survey used a tradeoff analysis to let respondents pick preferred policy changes for which they would be willing to pay. The most popular option was eliminating the payroll tax cap for individuals earning more than $400,000. Currently, employees and employers pay Social Security taxes on up to $176,100 in earnings.
The proposed change would reapply payroll taxes starting at $400,000.
Americans support higher Social Security taxes
Another popular policy option was raising the payroll tax rate.
Currently, employees and employers each pay 6.2% toward Social Security. The proposal would raise this to 7.2%. Other favored changes include adjusting the annual cost-of-living adjustment to better reflect the spending habits and inflation affecting older Americans, providing a caregiver credit for people who stop working to take care of young children, and providing a bridge benefit to workers in physically demanding jobs to help soften impacts from claiming benefits early.
The least popular change was reducing benefits for people with higher incomes, affecting those with $60,000 or more in annual retirement income excluding Social Security, and married couples with $120,000 or more. According to Bond, these combined changes would close Social Security’s funding gap and result in a minor 1% surplus. The new report coincides with another report released by the National Institute on Retirement Security, which analyzed Social Security polling over more than four decades and found strong public support for the program.
“People consider Social Security a really important program and want to ensure sufficient spending on it so that it can be there when they are ready to collect benefits,” Bond said. Confidence that Social Security benefits will still be available tends to increase as people near retirement age. This new understanding of Americans’ preferences offers insight into possible solutions for sustaining Social Security for future generations.