By: Danny Huizinga From: Heritage.org
Heritage research provides further support that the program “desperately needs to be reformed right now—for at least three reasons”:
1. Social Security pays more in taxes than it receives in benefits. A recent Heritage graph demonstrates Social Security’s yearly cash-flow deficits. Social Security is already adding to federal deficits and will continue to do so to the tune of nearly $1 trillion over the next decade. This trend is unsustainable and will lead to a financial crisis for the program. According to current Social Security trustees’ projections, if no reforms are made by 2033, benefits will automatically be cut by 23 percent.
2. Social Security is a poor investment. Another Heritage graph shows the dismal return on investment for younger Americans paying Social Security’s taxes. While past and current recipients receive much more from the program than they paid in taxes, younger workers will receive much less. In 1960, workers received $6.39 in benefits for every $1 paid in taxes. In 2010, however, workers received only $0.92 for every $1 paid in taxes. In 2030, that number will fall to $0.84.
3. Social Security hurts younger workers. A recent Pew Research Center poll shows that 54 percent of those ages 18–29 think it is not likely that there will be enough money to provide Social Security and Medicare benefits at their current levels in the future. Younger workers have no control over their mandatory contributions, even though they are uncertain about what (if any) benefits they will receive. Social Security’s payroll tax today is 12.4 percent, and if reforms are not made, that rate could continue to go up. Younger workers would be faced with the burden of paying back the $2.7 trillion owed to the trust fund and the $9.6 trillion in unfunded obligations over the 75-year horizon.
The Heritage Foundation has a plan to address Social Security’s growing problems without burdening younger generations with higher taxes.
There are three reforms that Congress can phase in right away: (1) replace the current cost-of-living adjustment with the more accurate chained Consumer Price Index; (2) raise the early and full-retirement ages gradually and predictably; and (3) focus Social Security benefits on those who need them most.
Moreover, Congress can help all Americans build additional retirement savings in accounts that they own and control, such as with the Automatic IRA.
Danny Huizinga is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please click here.