Increase of Taxes to Save Social Security

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Increase of Taxes to Save Social Security

Probably you have heard or read articles expressing the concern that Social Security may run out of money – it is not totally false. There is a growing alarm that Social Security funds are getting depleted.

The primary reason for this situation is that the money that is being paid out is more than the money that is coming in. The numbers of beneficiaries, who receive Social Security, the retired senior citizens, have increased all at once. The baby-boomer generation has reached retirement age and claiming Social Security benefits.

Another significant reason for this concern is the fact that, death rates have decreased, people are living longer. That amounts to paying benefits for a longer time.

Social Security Funded by Payroll Taxes

The Social Security program was initiated in 1935 as a means of old-age, survivor, disability insurance, hence, OASDI. An employed or self-employed person pays a part of his income as payroll taxes to the Social Security fund. A tax of 12.4% has to be paid by an individual as the contribution into this fund. If you are an employee, the amount gets shared equally between your employer and you, which comes to 6.2% for each. A self-employed person has to pay the whole amount on his own. This tax is applicable on an income up to $127,000. Any amount of income above that is not subject to this tax.

1 Solution for the Depleting Social Security Fund

For many senior citizens, Social Security benefits make up a large part of their retired income and they depend on it heavily. People who are working today and paying into the Social Security fund will be eligible to receive the pay outs tomorrow. So in order to make the safety net of Social Security stronger, they have to act now.

One suggestion that has come up is an increase in the rate of the payroll taxes. The Board of Trustees who manage the Social Security system has calculated a deficit of 2.66% in the funds. If the payroll taxes were to be increased by the same amount, that is, 2.66%, that gap could be filled up. That would be 1.33% increase for a salaried person as the rest of the 1.33% would be paid by the employer. So the payroll taxes would rise to 7.53% from the current rate of 6.2%.

Social Security Reserve Benefits

This increase is not a huge amount when calculated down to the per week increase but the effects it will have on the Social Security reserves is huge. It has been projected that if the payroll taxes could be raised to this figure, it would make the program strong enough to last for several future generations.

However this idea has not been received with much positive support. Surveys have suggested that people have objected to this tax increase. A smaller increase is still agreeable but not 1.33%. A small raise in the tax rates would not be enough to fix the problem.

If taxes were not raised, a time could come when Social Security benefits would have to be reduced by as much as 21%. The creation of new jobs could increase the contribution into the Social Security coffers. The leaders and lawmakers need to realize the gravity of the situation and address the problem immediately. Delay will only make the solution tougher.