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Money Minute: Social Security going bust? Not exactly [Video]

April 24, 2012|By David Lazarus

The headlines are scary: Social Security is going bust. Social Security is nearly bankrupt. True? Not really.

Here are the facts: The combined Social Security trust funds will be exhausted in 2033, three years earlier than projected in last year's annual report. The Social Security disability insurance program "faces the most immediate financing shortfall of any of the separate trust funds," according to trustees. It will exhaust its trust fund in 2016, two years earlier than projected last year.

But that doesn't mean Social Security is going broke, as some have reported. It means an existing surplus of funds will be gone and Social Security won't be bringing in enough tax money to cover current benefits.

The program doesn't die at that point. What would happen, according to trustees, is that Social Security would still be able to pay about three-quarters of scheduled benefits for an additional 50 years or so.

That assumes our political leaders still lack the spine to do anything to fix the problem. What could they do? Well, there are pretty much three choices -- raise taxes, cut benefits or both.

The trustees say a tax hike equal to about 2.6% of covered payroll would fix things. I'd also get rid of the current cap on taxable income. As it stands, the wealthy pay no Social Security taxes on income above $110,100. Let them pay 6.2% of their total income like everyone else.

Social Security isn't broke. It isn't bankrupt. But it's facing serious trouble.

And it could use some help.

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