In 2018, when the new health care law calls for taxes on “Cadillac” insurance plans, employers are expected to reduce those high-cost health benefits in favor of paying higher wages. The anticipated payroll taxes on that extra income is expected to ease Social Security deficits.
Overall, the Social Security trust fund will continue to grow because of interest income, and payouts won’t begin whittling away at assets until 2025. Under current funding methods, 75 percent of benefits could be paid out through 2084.
Small changes would work
Herd, of the University of Wisconsin, says that a variety of proposed solutions could prevent benefit cuts, from hiking the retirement age to raising payroll taxes. According to the actuarial figures released today, for example, Social Security retirement, survivor and disability payments could be stabilized for 75 years by adding another 1.92 percent to the existing 12.4 percent payroll tax.
“You could easily pull it all together with a few very small changes,” said Herd. “They may be changes people don’t like, but they aren’t dramatic and they’d prevent a 25 percent cut in benefits after 2037.”
According to a Gallup poll released in July, 67 percent of Americans surveyed preferred that payroll taxes be applied to all income, instead of just the first $106,800 as it is now.
“The trustees confirm that Social Security can pay full benefits for decades, and approximately 75 percent into the future even if nothing is done,” said AARP Executive Vice President John Rother.
“However, that is not good enough. AARP renews its call to act in the coming few years to shore up the system’s long-term ability to pay promised benefits to retirees, survivors and those with disabilities.”
“Social Security plainly faces challenges in the future, but it remains a bedrock of economic security for tens of millions of Americans and we will ensure it remains that way for generations to come,” said Sander M. Levin, D-Mich., chairman of the House Ways and Means Committee.
Melissa Preddy is a Michigan-based freelance writer specializing in personal finance and consumer affairs. She formerly worked for the Detroit News.