You know that things are getting really mean spirited when Democrats start claiming that Republicans are ready to defund Social Security and Medicare. Social Security has been around for almost 90 years so it’s unlikely that any sane person wants to toss it out. However, at some point in the next few years members of Congress are going to have to bite the bullet and dare to step on the third rail of American politics and reform Social Security.

Keeping in mind that Social Security is not a personal savings plan but one where contributions collected today go out tomorrow as benefits here is the problem facing Social Security. Back in 1935 when Security became law and in 1940 when the first checks went out the average American male lived for 60.8 years, and the average American women lived for 65.2 years. In 2022 the average male had a life expectancy of 76.1 years, while the average female could expect to live until age 81.1.

Simply put, this means that Social Security recipients are living longer and collecting benefits longer. Further, we have a declining birth rate. From the baby boom year of 1950 when there were 24.4 live births per 1000 women to 2022 when the birth rate was 12.02 live births per 1000 women the birth rate has been in a steady decline. This resulted in a declining number of citizens paying into a system paying more benefits. To close the gap the system has been borrowing from its trust funds since 2010. These will be exhausted in 2034.

What do we do? We can’t end Social Security. To do so would result in a surge in poverty amongst retirees. The program represents 41 percent of the income of elderly Americans and almost all of the income of single retirees.

The last two insolvency crises were in 1977 and 1983. In 1977 Congress raised the payroll tax rate by 25% and the maximum taxable wage by 68 percent, both over a period of years. In 1983 they cut benefits by raising the retirement age from 65 to 67 over the next four decades. These actions gradually built up the trust fund to $3 trillion although as I pointed out that amount is being rapidly depleted to bridge the benefit-contribution gap.

There has been little discussion or activity in Congress on reforming Social Security since the 1990s because in the short term all 65 million beneficiaries are getting their payments on time and will continue to receive them until 2034.

Legislators like many of us are procrastinators and also are loath to approach the deadly “third rail” of American politics. But at some point, they will have to act to place Social Security on a sound footing. What are their options?

They could increase the 6.2% payroll tax paid by employees and matched by employers over a set number of years. As an example, they could increase the tax by 1% over 20 years from the current 6.2% to 7.2%. Some economists have even suggested that by increasing the payroll tax to 8.1% that Social Security would remain solvent until 2095.

Another alternative would be to raise or eliminate the tax cap, which is currently capped at a maximum for 2022 of $147,000 of income, meaning that anyone earning more than the cap are not taxed on those amounts. As an example, congress could gradually double the tax cap or eliminate it altogether making all income taxable.

Another possible fix would be to increase the retirement age from 67 to 68 over a fixed period of years or increase it to 70 over an even longer period of years.

Although likely to be very controversial, Congress could also reduce the cost-of-living adjustment.

Currently this adjustment is based on the Consumer Price Index which some economists think overstates inflation. They suggest using an alternative index called the “chained price index” which considers changes to consumer spending patterns to provide a more accurate picture of the cost of living based on the goods that consumers actually buy. They make the claim that doing this would solve one-fifth of the long-term deficit.

While perhaps also controversial another alternative would be to “means test” benefits that would limit or eliminate Social Security payouts to high income retirees. This could be controversial if you imagine the reaction of a future citizen paying Social Security taxes on an income of several million dollars per year with no tax cap and being ineligible to collect benefits on retirement.

That is the state of Social Security in 2023 with some possible measures suggested by economists and others to fix it. These and other fixes for Social Security will be examined in the coming years as 2034 approaches.

Currently our nations citizens and politicians are polarized — as perhaps never before — but it behooves us to overcome that polarization so that we can see Social Security become solvent and our fiscal house placed in order.

Thomas Kirkpatrick Sr. is a Silver Creek resident. Send commets to jdagostino@observertoday.com