As the outsized Baby Boom generation claims Social Security benefits, Americans increasingly doubt whether the program can pay all that it has promised — or even continue to cut checks at all. Social Security’s Trustees warn that unless Congress acts to restore the program’s long-term solvency, by 2034 it will only have funds to pay 77 cents of each dollar. An adjustment this size in 2018 would drop the average Social Security check of $16,848 to $12,973. Most older Americans depend on Social Security for all or a majority of their income.
The longer Congress plays chicken on this issue, the greater the risk that changes such as tax increases or benefit cuts, or a combination, will have major economic impacts on retirees and workers. Program actuaries emphasize the growing ratio of retirees receiving benefits to workers contributing payroll taxes as a major force impinging on the program’s solvency. But other forces are at work. Growing wealth and income inequality have significantly eroded Social Security’s tax base.
Wealth concentration: As Americans at the top of the economic spectrum continue to amass equities, bonds, and other assets, the portion of national income from capital investment has increased significantly. In the United States, labor’s share of earnings fell about eight percentage points between 1995 and 2013. Since Social Security relies primarily on a tax on labor for its sustenance, the relative growth of capital income gradually is choking off a source of revenue.