Social Security faces a funding shortfall in 2033 which, if not addressed, could result in across the board benefit cuts of about 23%. While this shortfall does not pose an immediate crisis, there are reasonable changes that Congress should enact to keep Social Security solvent and strengthen it for current and future generations:
1) Eliminate the cap on Social Security payroll contributions. In 2014, only wages up to $117,000 will be subject to the Social Security payroll deduction. Lifting the cap will subject all wages to the payroll contribution which will help address the majority of Social Security’s projected funding shortfall.
2) Slowly increase the payroll contribution rate by 1/20th of one percent over 20 years. This gradual increase in the rate will significantly strengthen Social Security’s financial condition well into the future.
3) Treat all salary reduction plans like 401ks. All workers pay Social Security and Medicare taxes on their contributions to retirement accounts but no payroll taxes are collected from workers flexible spending accounts such as HSAs, transit and dependent care plans. This change will add money to the program.
4) Increase the basic benefit for all current and future retirees by 5% of the basic benefit (about $55 per month). This modest but meaningful benefit improvement is a long-overdue boost, especially for low-to-middle income beneficiaries who rely upon their Social Security benefit for the majority of their income.
5) Provide Social Security credits for caregivers. When computing the Social Security benefit, grant up to five family service years to workers who leave paid employment to provide care to children under the age of 6 or to elderly or disabled family members. This will provide greater parity for women’s benefits which are typically less than men’s due to interruptions to paid employment caused by family caregiving needs.
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