(Foundation for Economic Education) The taxes levied to fund Social Security have already risen drastically. In 1937, the Social Security tax rate was one percent on earnings up to $3,000 ($53,449 in 2019 dollars) to be matched by the employer. By 1971 it was 4.6 percent on earnings up to $7,800 ($49,411 in 2019 dollars). It now stands at 6.2 percent up to $132,900.
This is only going to get worse. According to Census Bureau projections, by 2030 each 100 working-age Americans will be supporting 35 retirees, and this could rise to 42 by 2060. Another way to think of this is to calculate the number of retirees each worker must support. In 1946, the burden of one retiree was shared between 42 workers. Today, according to the SSA, roughly three workers cover each retiree’s Social Security and Medicare benefits. By 2030, however, there will be only two workers supporting each retiree.
In other words, a working couple will have to support not only themselves and their family but also someone outside the family thanks to Social Security and Medicare.
To make Social Security solvent again, the payroll tax rate would need to be hiked immediately from 12.4 percent to 15.2 percent, or Social Security benefits would need to be cut on a permanent basis by about 17 percent.
According to economists Roger LeRoy Miller, Daniel K. Benjamin, and Douglass C. North: “[F]or Social Security and Medicare to stay as they are, the payroll tax rate may have to rise to 25 percent of wages over the next decade. And a payroll tax rate of 40 percent is not unlikely by the middle of the twenty-first century.”
Teenage climate activist Greta Thunberg recently made international headlines with an impassioned speech to the United Nations in which she complained that her future had been stolen by inaction on climate change. An American Ms. Thunberg’s age could say the same about entitlement spending on Social Security and Medicare.
By the expanding eligibility for and hiking the benefits of a pay-as-you-go system while at the same time having fewer children to fund it, the generations preceding that child have left a fearsome financial obligation. Either taxes will go up sharply for the workers of tomorrow, lowering their standard of living, or benefits will go down for the retirees of tomorrow, lowering their standard of living.
One group is going to feel pretty angry.