Social Security has grown far beyond its original mission. It now costs workers two and a half times what was originally planned, yet even so, the program faces a $19.8 trillion shortfall—the equivalent of $154,000 per household.
Propping up the program through benefit cuts or tax increases alone would be a raw deal for current and future workers. There's a better way.
Gradually shifting toward a universal benefit that provides higher benefits for lower earners and smaller benefits for middle and upper earners would leave most people better off. Accompanied by common-sense adjustments reflecting the way people live and work in the 21st century, this approach would provide a roughly 20 percent payroll tax cut for everyone.
In contrast, the Social Security 2100 Act proposes to achieve solvency by increasing taxes and benefits for everyone. It would increase benefits by $333 per year for someone who made $30,000 per year and by $12,333 per year for someone who earned $1 million a year.
It doesn't make sense to have a program that provides the highest benefits to people who have the highest earnings and the largest 401(k) accounts.
Moreover, the Penn Wharton budget model estimated that this vision for a bigger Social Security program would result in an economy that is $1.6 trillion smaller than a version of what I have proposed to make the program smaller and better targeted.
In part, that's because every dollar that workers are required to pay in Social Security taxes goes immediately out the door to pay current benefits, stripping them of the opportunity to invest that money so it will grow over time.
A Heritage Foundation analysis found that someone making $60,000 could have $47,700 more per year during retirement if they were able to keep and invest their Social Security taxes. Even a worker earning $20,000 per year could have $4,300, or 40 percent more, per year.
Social Security is a raw deal for populations with shorter life expectancies—especially lower-income individuals and African Americans. The fact that nearly one out of five African American men dies between the ages of 45 and 65 means that they and their families often receive little or nothing from Social Security, despite paying tens—if not hundreds—of thousands of dollars in taxes.
A smaller, modernized, and better-targeted Social Security program would provide the greatest bang for the buck, especially for low-income earners who rely most heavily upon Social Security.
This article was published by The Heritage Foundation.
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