About 63 million Americans, or 1 in 6, collect social security benefits. Most of those beneficiaries are older Americans, but some are also disabled people. The program is a vital source of income for beneficiaries, but COVID-19 could further strain the program’s already shaky finances. Social security depends on wage taxes, which will likely be reduced by the recession. In this post, we’re examining the pandemic’s impact on one of America’s oldest social programs, and the proposals to fix it.
Social Security Was Running Out of Money Before the Pandemic
COVID-19 is largely exacerbating existing issues with social security. Before the pandemic, the program’s trust funds were on track to be depleted by 2035, at which point the Social Security Administration would not be able to pay full benefits to recipients. The virus could lead to depletion to 2029, but the problem predates the pandemic.
Lost Wage Taxes Mean Lost Revenue for Social Security
Millions of Americans are out of work, which means that they aren’t paying into social security through payroll taxes. That is likely to just further deepen the program’s deficit, meaning that more people will be receiving benefits through the program than are paying into it. The problem is worsened by the fact that during periods of recession, more people tend to collect their social security benefits, because they themselves may have lost jobs.
COVID-19 Could Also Impact Benefit Calculations
The state of the economy due to the pandemic could also impact the benefits calculated for recipients. Almost every year, social security benefits are increased due to inflation, a practice known as Cost of Living Adjustment (COLA). But with the economy tanking, it is possible inflation will reverse, and no COLA will be put in place. The historic unemployment this year also could lower benefits for future claimants, since one way that the Social Security Administration calculates benefits is average wage growth.
There Are Proposals To Solve the Issue
Legislators on both sides of the aisle are working to solve the problems with social security and ensure that older Americans and those that rely on social security due to disability are able to receive the benefits that they need. Representative John Larson introduced a bill to protect benefits from being cut due to the drop in wages this year and increase benefits for low income workers, while in the Senate a bipartisan group of senators proposed the TRUST Act, a bill that would designate “Rescue Committees” with members of each party to work on solutions for social security and keeping the program solvent. The TRUST Act has had some opposition from advocacy groups like the AARP who are concerned that it would lead to a lack of transparency in decision making about social security, but senators in both parties have supported it.
Final Thoughts
Social security is an essential program for millions of Americans, but COVID-19 could threaten its long term solvency due to lost wage taxes. As legislators work to find a solution, we will keep you updated. In the meantime, if you are eligible for social security and would like to receive benefits, local hearing offices are open for business through telephone and email.
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