A Way To Help Save Social Security

Depending on who is counting, Social Security runs out of money in 2033. At that point, benefits paid will be about 77% of what they are today. Congress offered a little-known solution. It listed two reasons why Social Security payments are taxed. One was to treat payments like those of any other income. “The second was to provide revenue to strengthen the financial solvency of the Social Security trust funds.” The second point is important.

One way to extend the lifespan of Social Security is to waive the taxes on the payments. On paper, this means the burden triggers an increased U.S. deficit as some of the federal government’s income drops. However, those who receive payments keep more money.

The math is not easy to come by, but it is something like this. The annual total of these payments is about $1.5 trillion. Payment to the disabled and dependents is about 10% of that, according to the Social Security Administration.

What does the federal government receive on these taxes? It is not entirely clear. However, across most sources, the figure is about $90 billion a year. Old-Age and Survivors Insurance and Disability Insurance (OASDI) accounts for at least $51 billion of that. Medicare Hospital Insurance (HI) represents at least $35 billion. So, the total benefit for recipients depends on which payment segments the taxes affect.

The effects of the tax change would have a long-term impact. Congress reports that the percentage of Social Security recipients who do pay taxes will rise sharply between now and 2050.

It is difficult to calculate the exact benefit of decreased taxation. However, it is not de minimis. According to Pew, “The main issue is with Social Security’s retirement program, whose costs have exceeded its income every year since 2021. The gap, which was $70.4 billion in 2023, is projected to balloon to $414.5 billion in 2033.”

How much time does the elimination of taxes buy in terms of when Social Security runs out of money? Someone smarter than I am would need to provide a correct answer.

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