For years, it has been warned that Washington had to take action otherwise much of the funds in the Social Security system would be exhausted. No one listened. But now with time running out, President Obama and Congress are finally looking at making drastic cuts which would affect 11 million people.
According to a new report by trustees in charge of Social Security and Medicare, the disability trust fund would run out of money by the end of next year. This would create an automatic 19 percent reduction in benefits. That is, if Congress doesn’t take any sort of appropriate action.
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Moreover, trustees say there will be zero cost-of-living adjustment in benefits in late 2016. This means it’s the third consecutive year without an increase.
Presently, the average monthly benefit for disabled workers is $1,017. Once the cuts take into effect, that payment would be slashed by $193 per month.
To help circumvent the costs, it’s believed that roughly seven million Medicare beneficiaries could see a $54 monthly premium increase for outpatient coverage. This equates to an increase of more than half.
Medicare and Social Security account for nearly half of the United States federal budget. With the amount of national debt, it’s obvious reforms and cuts have to be made, particularly when interest rates go up.
Pundits opine that a major Capitol Hill fight between the president and Republicans will likely ensue. The White says one way to rejuvenate the disability trust fund is to re-allocate payroll taxes revenues into the Social Security trust fund. Republicans say they want substantial revisions to ensure the program’s long-term finances are stable. This could consist of restrictions on eligibility, cuts in disability benefits and initiatives to help the disabled return to the labor force.
More Bad News
Unfortunately, there’s some more bad news in the report.
In the annual report, it is said that the Social Security’s retirement fund will only have enough funds to cover full benefits until 2035. After that, Social Security will only be able to cover about 75 percent of benefits.
In addition, Medicare’s immense hospital trust fund is projected to be exhausted in 2030. Upon that date, Medicare taxes would only suffice to cover 86 percent of benefits.
“Today’s report shows that we must seek meaningful, in some instances even urgent, changes to ensure the program is on stable ground for future generations,” said Jo Ann Jenkins, the chief executive officer of AARP, in a statement.
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Conclusion
It’s obvious that after years of neglect, misappropriation and politicians acting like Santa Claus, the chickens have finally come home to roost. The long-term fiscal solvency of much of Social Security is finally making headline news, but at a time when it’s pretty much too late. Benefits will be slashed, cuts will be made and millions will be unable to adapt.
The tax rate on wages for Social Security has not been raised since the 1990. Employers are benefiting with lower average wages, adjusted for inflation and ending many retirement plans, so they are paying lower SS taxes. The tax should be raised the same as the COLA each year, until it reaches 10% for worker and employer. That is more in line with what the retiree will receive in benefits. At current COLA’s or lack there of, it would take over 20 years, but these small increases each year would help. Most retiree’s get back everything they paid in taxes to SS in 6 to 8 years.