Increasing Tax Rates to Sustain Social Security

Economic Model for Social Security
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Economic Model for Social Security
Regardless of political affiliation, Americans continue to love and support Social Security. However, there are financial issues with the scheme. Because it distributes benefits at a higher rate than it collects taxes, its trust fund is being depleted. 81 million Americans are anticipated to see automatic benefit reductions of 20% by 2034 when the fund is expected to run out of money. Fundamentally, social and moral considerations are the primary justifications for improving rather than reducing Social Security. Any policy choice on a crucial social program should consider not just tactical calculations but also the program's overall effects. As alternative retirement supports have become less secure, Social Security payouts have become important to Americans. Therefore, I recommend an increase in tax rates instead of reducing the current benefits level.[“How to Fix Social Security? It’s Political but It Can Be Done,” Princeton University, accessed October 8, 2022, /news/2022/05/02/how-fix-social-security-its-political-it-can-be-done.] [Max J. Skidmore, “Should We Cut Social Security to Reduce the Deficit?” Scholars Strategy Network, accessed October 8, 2022, https://scholars.org/contribution/should-we-cut-social-security-reduce-deficit.]
It is critical to comprehend how Social Security functions to understand why there is a long-term financial problem. First off, payroll tax deductions are used to pay for Social Security. Both workers and employers are responsible for paying these payroll taxes, which are deducted immediately from an employee's paycheck. Payroll taxes will be levied on an individual's yearly salary up to $147,000 in 2022. The Social Security payroll tax rate is 6.2%. Accordingly, 6.2% is split equally between employees and employers. Self-employed workers are subject to the total 12.4% payroll tax rate.[Paul, Trina. “Will Social Security Run out of Money? Here’s What Could Happen to Your Benefits If Congress Doesn’t Act.” CNBC, February 8, 2022. /select/will-social-security-run-out-heres-what-you-need-to-know/.]
A worker's Social Security payroll tax payment does not go into a separate Social Security fund designated exclusively for them. Contributions from current workers fund all existing retirees' benefits. The Social Security Administration estimates that in 2022, 85 cents of every dollar contributed to Social Security payroll taxes will go to the Social Security trust fund, which will pay monthly benefits to active retirees, the surviving relatives of deceased employees and families. The remaining 15 cents are given to a trust fund that helps families of handicapped people.
The Social Security Administration will use up its reserves over the next ten years or more since fewer employees will be supporting more pensioners. The situation is due to the baby boom era, which lasted from 1946 to 1964 and was immediately after World War II, resulting in a fall in the birth rate. People are producing fewer children, and as a result of the dropping birth rate, there are also fewer employees to support b...