The coverage of Social Security generally allows for two types of articles: those that tell us that we will receive nothing and those that tell someone else how to collect as much as possible from the troubled program.There is very little coverage in between, and virtually nothing on the rising cost of the program.
While pundits and experts assert that Social Security can pay benefits until 2034, the underlying assumption that no one discusses is the rapidly increasing taxes, particularly those paid by Millennials.
Everyone pays 12.4 percent of wages
Someone is screaming, “Wait!. Everyone pays the same rate!” It is true, but paying the "same rate" is not the same thing as paying the same amount because Social Security draws on multiple sources of revenue.
Today the program consumes every penny of payroll taxes. Previously, this revenue covered the entire cost of Social Security and left some remainder which was invested for future benefits. Workers were essentially putting money aside for themselves. So while the rate has remained constant, we aren't paying for the same things.
Times are changing
Today that is not the case anymore. Since 2010, the trustees of the program have that Social Security consumed the all of the tax revenue collected.
There was nothing left over. In addition to the payroll taxes, the general tax revenue is used to make interest payments on amounts previously left-over by earlier workers in the Trust Fund.
To illustrate
In 2001 for example, the program only used about 70 percent of the revenue that it collected. That means for someone who was 50 at the time the cost of the inter-generational contract was about 8.5 percent of their paycheck.
The rest of the money was set aside to pay future benefits, which the 50-year-old of the time expected to receive back. Today’s 50-year-old, on the other hand, expects to retire after the Trust Fund has been used up.
In 2016, the combined cost of the program runs around 20 percent above the stated rate of 12.4 percent. In order to fill the existing gaps in Social Security for the next 75 years, the total cost would run above 15 percent.
If we wait until 2034 to deal with these imbalances, the cost would approach 16 percent just to pay the bills.
This trend is getting worse
The Trustees of the program estimate that the cost of the program will exceed the revenue in all forms in 2020. This isn’t a theoretical question about hard-dollars and soft-dollars. The government will need to find more than $200 billion in financing per year until 2034 to replace the bonds that are retired. That is a lot of money considering that Congress struggles to find $20 billion in savings in any year.
Social Security will get to 2034 intact provided that we are ready for a very rough ride.
