According to a new report written by Monique Morrissey of EPI, the projected shortfall in Social Security revenue is mostly due to depressed wage growth. According to her report, had wage growth kept up with gains in productivity, 51% of the projected shortfall would have been eliminated.
Because of income inequalities, FICA taxes captured only 86% of taxable income instead of the necessary 90% required to break even in the 1983 formula. Due to income inequality, high income earners escaped the FICA taxes because much of their income lay untaxed above the FICA cap of the first 106,800 dollars they made. Resetting the FICA cap level would close 31% of the projected gap between revenues and benefits.
16% of the projected gap between normal benefits and revenues could be closed if the payroll tax rate rose only 1%, slowly in increments over twenty years, from 6.2% to 7.2%. And healthcare reform corrects 7% of the projected shortfall because healthcare costs drove down taxable earnings.
The study demonstrates that there is insufficient reason to raise the full benefit retirement age and to cut benefits for retirees in the distant future. With an eye toward accumulating sufficient revenues, Social Security can be maintained without any reductions in benefits.
Morrissey tackles factors which have become Social Security memes in the media, applies factual knowledge to deal optimistically with each one, and ends on an upbeat note. I recommend that you read the entire report and save the Bookmark for future reference.