The probability of Social Security’s ability to continue distributing full benefits to retirees is low, according to the forecasts of most economic and financial experts. The forecasts predicting Social Security’s insolvency stem from the manner in which the Federal government funds the program. Currently Social Security is funded through employee tax payments under the Federal Insurance Contributions Act or FICA (Martoccio, 2011). The benefit payments the government distributes to existing retirees comes from the current contributions of existing workers (Martoccio, 2011). In other words, the funding for the amount of outgoing payments is dependent on the amount of incoming payments. As the amount of retirees is expected to outnumber the amount of workers, by the year 2032 there will only be 2.1 workers per beneficiary (Martoccio, 2011). This is a significant drop from the year 1960, when there were 5.1 workers per beneficiary (Martoccio, 2011).
Politicians have proposed several ways to reform Social Security, including raising the full retirement age, recalculating the benefits formula, privatizing benefits, increasing the payroll tax rate, reducing benefits for higher wage earners, including government workers, and means-testing (AARP, 2012). Raising the payroll tax and means-testing appear to be the most legitimate methods to help ensure Social Security continues for future generations. Opponents to these methods argue that these methods are redistributive and unfairly punish those who earn more (Kurtzieben, 2011). As the purpose of Social Security is to prevent extreme poverty, it would only seem equitable to reduce benefits for those members of society who do not have as much financial need. Those who have the financial means to support themselves in retirement should not receive as much money from a social program designed to compensate for earnings inequity.
Removing the payroll tax cap on earnings of $106,800 per year also ensures that those who earn more are taxed in a more equitable fashion. It is not financially or socially equitable to expect lower-wage workers to contribute a higher percentage of their annual earnings and then receive reduced benefits (or no benefits) once these same workers reach retirement age. Nor is it practical to expect these workers to continue working in low-paying jobs in order to fund their basic living expenses. Since the labor market creates social and economic inequities, it is the responsibility of the government and those who are largely responsible for socioeconomic inequity to help balance the scales. One of the fundamental natures of any tax system is socioeconomic redistribution, and Social Security should not be any different. Nor should the government be apologetic for enhancing the redistributive qualities of a social program designed to provide a cushion for those who do not have an opportunity to build their own.
References
AARP.org (2012, June). The future of Social Security: twelve proposals you should know about. AARP.org. Retrieved June 28, 2015 from http://www.aarp.org/work/social-security/info-05-2012/future-of-social-security-proposals.13.html
Kurtzeiben, Danielle (2011, September 15). Five ways to reform Social Security. US News & World Report. Retrieved June 28, 2015 from http://www.usnews.com/news/articles/2011/09/15/5-ways-to-reform-social-security?page=2
Martocchio, Joseph J. (2011). Employee benefits: a primer for human resource professionals. New York, NY: McGraw-Hill/Irwin.
