It’s time for honest consideration of the problems facing Social Security but first, the good news.  The Social Security Trust Fund, from which benefits are paid, has a balance of $2.9 trillion.  The money that was deducted from our paychecks and the matching contributions from our employers built that balance.  Our money is invested in US Treasury Certificates and it will be paid back when it is needed.  It is about 13% of our total national debt.

Here’s the bad news.  We’re going to begin spending down the trust fund in the near future (this year or 2019) to pay benefits.  The trust fund was built by large numbers of “baby boomers” who were working and now that they’re retiring Social Security it will be paying out more than current workers are paying in.  We’ve known for decades that this time would come but the circular firing squad that we call a congress hasn’t acted.

If nothing is done, the Trust Fund will be empty by about 2034 so only current FICA Tax revenue would be available for benefits.  That would require a benefit cut of about 21%.  All of the solutions proposed so far require some combination of increased FICA tax, delayed retirement or reduced benefits.  There will be “winners” and “losers” and only the Congress has the authority to decide who they will be.

Increasing the normal retirement age for full benefits doesn’t help as much as you might think.  It’s already set to rise to 67.  If it’s raised to 70, there will be an increase in valid applications for Social Security disability benefits; and payment of those benefits will offset some of the savings.  It’s true that Americans are living longer and drawing benefits for more years than when Social Security was introduced but the proportion who are capable of working declines with every year of age increase.

Another possibility is to raise the FICA tax on both employees and employers.  It is currently 12.4% (half paid by employer and half by employee) on wages up to $128,700.  There is no Social Security tax or increased benefit for those with higher incomes.  Raising that tax is a terrible idea because the entire 12.4% comes from money that employers have available for wages and benefits to middle and low income employees.  Those wages are not keeping up with the cost of living and a FICA tax increase will make that problem worse.

Right now income inequality and wealth inequality are the worst they’ve been in our national history.  America’s hourly workers are doing their part but they’re not getting paid for it.  Since 1973, the inflation adjusted productivity of American workers is up by 77% but their wages are up by only 12%.  They are in no position to absorb a tax increase and many of their employers, who would bear the other half of a FICA increase, are in a similar position.  Nearly all of our economic gains since 1973 have been captured by the wealthiest 1% of Americans.    (Yes, those are the same ones who just received the largest tax cut in American History.)

We need a way to preserve Social Security without harming our low and middle income workers and their families.   One possibility is a “flat tax” of 1 or 2 percent applying only to income in excess of the $128,700 cap on the FICA tax.  The new tax should apply to all income: wages, interest and every kind of investment income.  That would be sufficient to fund Social Security far into the future without raising the FICA tax or increasing the normal retirement age; and it would be a tiny step toward fixing laws that unfairly tax wages at higher rates than investment income.

It is the hourly workers of our nation who have produced the extreme wealth enjoyed by the top 1%.  This is not a plan to penalize the wealthy.  It is merely a way to assure a decent and safe retirement for the people who produced their wealth.  It’s the same kind of thinking that got us through the early 20th century, the last time when income and wealth shifted from the middle class to the few.

I hope someone comes up with a better idea, but this is one that will work.  Making the necessary choices is going to be difficult for any congress and any President but the time for action is upon us.  Doing nothing is no longer an option.  Nor is it an option to allow Social Security to fail.