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Retire Better: Another victim of COVID-19: Social Security

Long-term and short-term problems are looming Read More...

The problems keep piling up. You don’t need me to tell you how bad things have gotten in just a few short, stunning weeks.

But beyond the present crises—the COVID-19 virus and the shutdown of vast swaths of the economy—there are longer-term problems that not only are festering, but may get worse because of what’s happening today. One problem: Social Security.

As you know, this gargantuan system—which is devouring $1.15 trillion dollars this year — by far the biggest portion of the federal budget — is supported by payroll taxes. The basic construct: the system is funded by payroll taxes; workers and their employers each pay 6.2% of wages up to the taxable maximum of $137,700 (in 2020). If you’re self-employed, you pay the full 12.4%.

But some 16 million Americans—about a tenth of the entire U.S. labor force—have filed for first time unemployment benefits over the past three weeks. That’s 16 million workers, along with their employers, who aren’t paying into the system. And yet about 64 million Americans are entitled to an average monthly benefit this year of $1,503. If millions are no longer paying into the system, where’s all this money come from?

Congress included a payroll tax holiday in the $2.2 trillion stimulus package it just passed. Companies have until the end of 2022 to pay back what they owe for the rest of this year.

But what if companies go bust? And what if retirement-age workers who have lost they jobs and can’t find work decide to start taking what they’re entitled to? Social Security could be drained even faster.

And that’s just the short-term problem. More ominously, the shortage of people paying into the system—even before this year’s catastrophes—is also a long-term worry. Since Social Security is based on new workers supporting retirees, consider this: the Census Bureau says the U.S. birthrate has now fallen for the fifth year in a row.

It says the U.S. population was 328 million last July 1, up 0.48% from the year before. One-half of 1%. And yet, the Census Bureau says the number of older Americans is growing much faster than that. It projects that the number of Americans aged 65 and older will nearly double from 52 million in 2018 to 95 million by 2060, with that share of the total U.S. population rising from 16% to 23%. Many of these will be so-called “super seniors” who live to at least 85.

Who’s going to foot the bill for all these people? The birthrate is going down, but millions of Americans are living much longer. Something’s got to give.

And that something is already beginning to give. For the first time since 1982, Social Security is paying out more than it in taking in; by 2035—just 15 years from now—its cash reserve (the so-called “trust fund”) will be depleted. After that, the Social Trustees (the head Trustee is Treasury Secretary Steve Mnuchin) warns that Social Security will only “be sufficient to pay about three-quarters of scheduled benefits.” In other words: a 25% cut.

Here’s the part where you might shrug and say, “Hey, 2035? Who cares? They’ll fix it by then.” Fix something this big? In this hyperpartisan era? You have more faith than I do.

There are fixes, of course, none of them easy. It’s all but inevitable that protecting Social Security will mean higher payroll taxes, a higher retirement age, or delayed cost-of-living adjustments. Maybe a combination. In any case, all would inflict pain on taxpayers and/or recipients. What politician wants to do that?

Meanwhile, and from a pure numbers standpoint, the current antipathy that many Americans have toward immigration isn’t helping, either.

Consider this: According to New American Economy, a “nonprofit, bipartisan immigration research and advocacy organization,” undocumented immigrants paid $13 billion into Social Security funds in 2016 and $3 billion to Medicare. But since undocumented immigrants don’t have Social Security numbers and are not authorized to work here legally, they’re ineligible for any benefits, whether they’ve paid into the system or not.

Whatever your views on immigration, that’s an awful lot of money coming into the system. As policymakers continue to debate immigration, they should also consider ancillary factors like this.

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