A joint effort to save Social Security
Social Security and Medicare entitlements make up a substantial part of many retirees' financial support. Credit: Jim Peppler
Our nation’s social safety net is in jeopardy, and the pandemic may be partly to blame.
The Social Security Old Age and Survivor Insurance, or OASI, Trust Fund – which pays for Americans’ retirement and survivor benefits – is running out sooner than expected, according to the latest report of the board of trustees that monitors the fund.
The board’s 2020 annual report,indicated that OASI funds would be depleted by 2034, if nothing changed. Then came COVID-19. The new report, released in August 2021, says funds now are estimated to last until 2033. From all indications, the funds would have run out much earlier had there not been a 17% increase in the mortality rate of Social Security recipients. Over 400,000 more Social Security recipients died in 2020 than in 2019 because of COVID. But an increase in the mortality rate is not the way to save the Social Security retirement system.
The ongoing impact of the pandemic on Social Security has yet to be determined. But the death toll from COVID will continue to shrink employment and reduce FICA tax collection, affecting the longevity of funding for the Social Security system. FICA taxes, commonly known as payroll taxes, are withheld from employee paychecks for Social Security and Medicare. They help fund our Social Security program.
When individuals collect unemployment checks, which has become significantly more common during the pandemic, they are not paying payroll taxes. Federal subsidy programs created to help small-business owners have also had an inadvertent negative impact on the funding of the Social Security system.
For example, the Employee Retention Credit program, which was established to help business owners during the pandemic by reimbursing them for payroll and FICA taxes, unintentionally hurts the Social Security system. This program, which is in effect until the end of 2021, has reduced and will continue to reduce the amount of FICA taxes being paid into the Social Security system.
What we need immediately is bipartisan support for legislation to overhaul the payroll tax system. If Congress enacts no legislative changes, scheduled tax revenue will be sufficient to pay only about 78% of the scheduled Social Security retirement benefits after trust fund depletion.
Michael Rosedale is chairman and co-founder of the National Association of Registered Social Security Analysts and a partner at Rosedale, Drapala, and Sforza, a CPA firm on Long Island. Credit: Michael Rosedale
Policymakers have developed numerous proposals and options to address the long-range solvency problem. The Biden administration originally proposed the "donut hole" solution. No FICA tax would be charged on those making between $142,800 and $400,000, but those making over $400,000 would be subject to the payroll tax. This solution would unfortunately only extend the longevity of the Social Security system by six years.
Through my work, I do what I can to help individuals and businesses navigate ongoing changes in tax laws to mitigate their tax obligations. With that in mind, I am generally opposed to tax proposals that will raise income and capital gains rates.
However, there is an immediate need to raise the Social Security tax. But that would need bipartisan support, which is a rarity these days. In seven years, a fifth of the nation’s population will be eligible for Social Security benefits. As one of the 70 million baby boomers who expect to receive a Social Security check without interruption or reduction, I believe Congress and the president must act now to save the safety net so many Americans depend on.
This guest essay reflects the views of Michael Rosedale, chairman and co-founder of the National Association of Registered Social Security Analysts and a partner at Rosedale, Drapala, and Sforza, a CPA firm on Long Island.
