The Social Security trust fund will run out of money by late 2032, according to the annual report the program issued last month. The specific date is new — last year’s report projected insolvency by early 2033 — but the overall trend is not: Social Security’s long-run imbalance was first projected in 1985. Even for Congress, ignoring 41 years of warnings about a problem that is both consequential and easy to fix is breathtaking.
It is also puzzling. Americans are not divided about Social Security or how to move forward: 85% would rather see a tax increase than a benefit cut. The most popular policy by far is eliminating the cap on Social Security taxes, which are not collected on earnings above $184,500, followed by a marginal rate increase to the payroll tax. These two changes alone would cover 87% of the 75-year shortfall, more if the tax contributions above the current cap are not credited with higher benefits.
See? I told you it was easy to fix. The harder policy conversation is about how to expand and strengthen the program. Social Security is far from perfect — and the self-employed illustrate why. One way to improve the program: Social Security ought to change its tax treatment of self-employment and start taxing the employers of independent contractors.
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