social security problem

The Tax Attic – June 11, 2009

June 11, 2009 // 0 Comments

Options for Social Security problem Social Security-it’s an entitlement program that we have gotten used to participating in. Those of us lucky enough to be still working participate by paying in Social Security tax. Most of us age 62 or older and those taxpayers who are disabled participate by receiving benefits. The problem that has been developing since the late 1970s is that more people are going to participate by receiving benefits than participate by paying into the system. In 1983, Ronald Reagan convinced Congress to gradually increase the age at which taxpayers can receive full benefits as well as reduce the benefits that taxpayers will receive if they opt to begin receiving early benefits at the age of 62. Since 1983, the only changes made have been to increase the amount of earnings upon which Social Security tax will be paid. That maximum amount for 2009 is $106,800. In 1983, the maximum was $35,700, so that has been a huge change. Unfortunately, that is not enough change. Social Security is slated to be completely bankrupt by 2037 unless more changes are made. If nothing is done, what exactly will happen in 2037? What will the federal government do? Apparently, they will have three options. Option one is the federal government quits paying benefits, but it also quits collecting the tax. It’s not realistic to presume the federal government would voluntarily stop collecting any tax, let alone Social Security tax. “Fat chance” might say it all. Option one of not paying benefits and not collecting tax won’t happen. Option two is benefits would be decreased to equal the level of revenue. In other words, the dollar amount of benefits would be adjusted down or up, based on the amount of Social Security tax collected. The downward adjustment could be anywhere from 30 to 60 percent. Taxpayers receiving a $1,000 benefit would have their benefit reduced down to $300 or $600. Can you say the word “rebellion”? Option three is the federal government continues to pay the same benefits while just printing money. As we are seeing, they are proving to be very good at printing money. Going in the hole by a trillion or two doesn’t bother the present administration, but we will have to […]