Benjamin Franklin said that “in this world nothing can be certain, except death and taxes.” Aside from the humor in this quote, it keys in on how central and important taxes are in our life. Tax season is stressful and while taxes can be a burden, they still provide funding for several important social programs including Social Security and Medicare. If you were to ask retirees what their main source of income was, many would say that it is Social Security, but Social Security does not only affect older people. In fact, everyone who has a job is affected by the payroll taxes that each employee pays to fund Social Security. Social programs such as Social Security and Medicare have become integral parts of our safety-net, but there are serious problems confronting policy makers concerning the economic viability of these programs.  

 A novice in the field of public policy may believe that Social Security is enshrined in the Constitution or at the very least has served as a safety net for Americans since near the founding of the United States, but the founding of Social Security is more recent than one might expect. The Social Security Act was signed into law on August 14, 1935 by President Franklin Delano Roosevelt in the New Deal. Although it was not one of the first pieces of legislation passed by the fledgling administration, Social Security would prove to be the most significant of the bunch. 

Judging by the importance of Social Security today, one would not be foolish to assume that there must have been some sort of safety-net before Social Security, but that was not the case. Before Social Security, workers were expected to save accordingly throughout their working years to pay for their expenses in their retirement. In addition to the retiree that receives Social Security, some people qualify to receive Social Security if they are disabled. Before Social Security, disabled people were not able to work to save up enough money for a retirement, so they, for the most part, received financial support from close family or from charities, often those with a religious mission. After the founding of Social Security, the charities and individuals that supported the poor or disabled largely became inconsequential as the government took over the lion’s share of aid for these underprivileged people. But a pernicious effect started with the creation of Social Security. Instead of individuals privately saving for their retirements, people began to believe that the Social Security they were paying into would be an adequate source of income when they eventually retired. 

Noted economist Thomas Sowell says that the belief that Social Security was supposed to be the main source of income in retirement is just a “political fantasy” pushed by politicians of the time (Sowell). It was by definition, supplemental. The payments were never meant to sustain a lavish lifestyle or even a frugal one. It was intended only to assist retirees in purchasing the most essential goods, and if this was the measurement used to determine whether or not Social Security has been successful, the answer would be a resounding yes, but over the course of time Social Security has morphed from being something between supplemental income insurance for retirees and a safety net for disabled and family members of fallen soldiers, to a system that retirees depend on as their main source of income.  

Expectations about who should receive benefits and how much they should receive has grown exponentially since the founding of Social Security. Understandably, a great burden has been placed on Social Security by the voters and politicians that believe Social Security’s benefits should be expanded and increased.. For example, in 1945 the number of workers per retiree was 41 to 1. Now, the ratio is near 2.9 workers per retiree and is expected to drop to 2 workers per retiree by 2030 (“How to Save”). There are a few reasons for this: first, and most importantly, people are living longer. When Social Security was enacted the life expectancy for an American was actually slightly below 65, the age of retirement for most people. Now, life expectancy is near 80 years old. Second, in the decades following World War II birthrates skyrocketed to levels never seen before in America, creating a tsunami of retirees that will start receiving Social Security in the coming years. And third, disability claims are at levels never seen before (French). With people living significantly longer, disability claims on the rise, and the start of the “baby boomer” retirement cycle, Social Security is in serious trouble financially. 

Many people assume that Social Security will be there for them and their children, but a number of politicians have recently suggested that Social Security many not be solvent much longer. When people hear the word solvent associated with Social Security, they probably think about how the government will be able to fund their liabilities – what the government owes in Social Security benefits. Right now, Social Security is funded through payroll taxes. Payroll taxes consist of an employee contribution of 6.2% of the employee’s earnings and a matching contribution from the employer to bring the total to 12.4% of the employee’s earnings up to the cap of $118,500 (any earnings beyond this is payroll tax exempt) (“Who Pays”). This tax is considered regressive because it disproportionately taxes smaller earners. Warren Buffett often says that he gets taxed at a lower rate than his secretary for just this reason. Assuming that she makes less than the $118,500, she must pay payroll taxes on all of her earnings, unlike Buffett or any other high earner who only has to pay payroll taxes on the first $118,500 of his earnings. 

 Although politicians on either side of the aisle have their disagreements on many issues, there is agreement in the fact that the way we are currently funding Social Security cannot last much longer. The agreement ends when politicians start proposing solutions. The differences between potential legislation on both sides are so great and the political stakes so high that any bill that gets introduced by either party would have to be seriously modified to receive any support from the other party.  

During the past presidential election, the candidates of both major parties proposed various policies regarding entitlement programs, such as Social Security. None of the serious contenders – Clinton, Sanders, Trump, Cruz, Rubio – had plans very similar to one another. The position furthest to the right on the political spectrum was Cruz. He proposed that we leave Social Security untouched for the people that are near retirement, but Cruz eventually wanted to phase out the payroll tax entirely by instituting a private savings plan instead, thus making Social Security obsolete (“Ted Cruz”). To the far left was Bernie Sanders who wanted to increase benefits and expand Social Security. He planned to pay for these expenses with lifting the $118,500 cap at which the wealthy can get taxed (“Bernie Sanders”). Cruz and Sanders are far-right and far-left, respectively, and have views that reflect their political ideology. Although those candidates were serious contenders for their respective party’s nomination and necessarily had influence in shaping at least part of the party’s platform on the issue of Social Security, there are considerably more centrist policies on both sides of the aisle. These moderate policies are more palatable to both parties, and will serve as a template for my hypothetical policy.   

Again, the issue of solvency really comes down to whether or not the government is bringing in enough revenue (taxes) to pay their expenses (Social Security benefits). Because of this, there are really only two options: you can either raise your amount of revenue generated – by a hike in the tax rate or otherwise – or cut benefits by raising the retirement age or freezing the cost of living adjustment (COLA) to temporarily keep the amount paid to each recipient the same, instead of raising COLA in lock step with inflation. 

It is anathema for a Democratic politician to mention cutting an entitlement program and, true to form, Democrats up and down the ticket instead ran on strengthening funding for entitlement programs and expanding benefits like Social Security to more people. Many people within the party believe that it is Social Security’s job to provide an income large enough to live off in retirement instead of just the supplemental income or income “insurance” that Social Security was originally meant to be. Because of this belief, many Democrats believe that the Social Security needs to be dramatically expanded to ensure that those under a certain income level can live a life free from worry about how they are going to pay their bills. To pay for this, many Democrats, as well as some Republicans, have proposed decreasing or, in some cases, complete slashing the benefits for people that make above a certain amount. Cutting benefits for the rich alone would not be sufficient enough to ensure the viability of Social Security, so another proposal, in conjunction with the cut to benefits for the rich, is to hike the baseline payroll tax rate or to increase the amount on which earnings can be taxed. 

While in theory the increase of the payroll tax rate to, say, a combined 13.4% instead of the current 12.4%, would absolutely be sufficient to ensure the solvency of Social Security for the near future, there are some serious concerns about what an increase would do to businesses, especially those with slim operating margins, which are, by and large, small businesses. Recently, many Democratic politicians and voters have stigmatized businesses as avaricious with the assumption that businesses, instead of taking care of their employees, have huge piles of cash that the management of the company greedily keeps for themselves. Although maybe a small number of companies are like this, the vast majority of businesses operate on razor thin margins so a hike in the payroll tax would be devastating to the company and could potentially lead to bankruptcy. While some large corporations have a sufficient profit margin to withstand a hike in taxes, many small businesses just will not be able to cover the additional expenses. The misconception that companies should just foot the bill shows a fundamental disconnect between Democratic policy makers and their understanding of how businesses, and, in particular, small businesses operate.

A more palatable Democratic proposal is one in which the cap that earnings can be taxed at (currently at $118,500) is increased. This would make the tax more fair. Like I stated before, the payroll tax as it is now is “regressive.” If the government could tax every dollar that high earners make instead of just the first $118,500, it would be a boon for the government and would assuage fears about the near-term solvency of Social Security. Although a fair and economically feasible idea, high earners will most certainly view this unfavorably. 

While Democrats prefer to increase funding by raising taxes, Republicans favor small cuts to benefits. While cutting Social Security benefits sounds very bad initially, it needs to be said now that no Republican mainstream politician is proposing to cut current recipients benefits. Instead, they want to cut benefits by raising the retirement age or exempting high-earners from receiving Social Security benefits among other things. 

Republicans are often pointed out as the bad guy when it comes to Social Security because of their view that cutting benefits is more economically practical than increasing taxes. While Republicans have not proposed any legislation that would have an immediate impact on current benefits or current revenue generation, their chief solution is that of raising the retirement age. Like I mentioned earlier in the paper, people are expected to live nearly 15 years longer now than they did at the advent of Social Security, so it only seems logical that a program would struggle to fund a program that must allocate benefits for 15 years longer than it was intended to. To solve this problem, Republicans want to raise the retirement age by just a couple of years for those set to retire starting some ten years from now. This would give sufficient time for those people to plan accordingly and save a little bit more now that they know they will not be receiving benefits for another two or so years than they had been expecting previously. Although this proposal may come off as unfair, I think it is the best solution I found to ensure Social Security’s solvency in the near future. 

At this juncture I would like to raise a point that was inspired by the skeptic in me. I feel that both sides are underestimating the massive amount of political capital needed to get widespread acceptance of any bill that either side is proposing. Even though I think that raising the retirement age is the most economically realistic plan, passing this bill would likely require Democratic help and because of the significant differences between the Republican and Democrat’s plans, there would almost definitely be serious opposition. 

To remedy this problem and bridge this conflict of visions, there must be a Democratic policy or two to sway the Democrats in favor of reforming Social Security. The Democrats understand that Social Security reform is of upmost importance, so they feel pressure to get something passed, but it is the Republicans that hold an advantageous position and will be the true power brokers here as they hold both the Presidency and both houses of Congress. I believe raising the retirement age is the best solution to this funding crisis and this would be the cornerstone of the legislation. While not particularly liked by Democrats, it is not hated, so the inclusion of a Democratic positions like removing the tax cap of $118,500 and increasing the benefits to the poorest recipients with the added revenue generated by the removal of the tax cap would, in my estimation, be a favorable enough compromise for the Democrats. 

Although my proposed policy could seem like a mixed bag of various Republican and Democrat positions, I believe it is a feasible policy. It considers the pertinent issues facing Social Security and comes to solution that is agreeable to both Republicans and Democrats. Although both parties would have their qualms with the parts of the bill, both understand that Social Security reform is necessary and is genuinely an imminent problem. Politicians will undoubtedly  face heat at the ballot box for taking a stand on an issue that many people do not want to see changed, but voters must understand the long-term consequences if action is not taken now to ensure the survival of Social Security. 
