If no changes are made, then eventually the Social Security trust fund will run out of money. One of the commonly proposed solutions is to increase the amount that the wealthy pay in taxes. But will it work?
Because of America’s changing demographics and aging population, it is expected that the Social Security trust fund will be depleted by 2034 if current trends continue. That does not mean Social Security will cease to exist, but the benefits given to seniors would have to be reduced to meet the program’s income. Politicians have proposed several different solutions to this expected problem. Recently, Trust Advisor looked at one of them in “Can Taxing The Wealthy Save Social Security?”
The reviewed proposal is a simple one: raise taxes. Currently, any income an individual makes that exceeds $118,500 is not subject to the payroll taxes that fund Social Security. Politicians have proposed eliminating that cap and taxing all income. According to the findings of the article, the proposal would not solve the entire problem, but it would reduce the expected shortage by 88%. However, that number has been disputed. If different assumptions are made, then different results can be produced concerning the effectiveness of the plan.
Something will have to be done about Social Security, and it is likely that many different solutions will be offered in the coming years. It will be important to continue to assess whether the proposals could be effective or whether they are merely being made for political reasons.
Reference: Trust Advisor (July 14, 2016) “Can Taxing The Wealthy Save Social Security?”