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As previously reported by FOX Business, funding for Social Security was on shaky ground even before the coronavirus pandemic began.
According to the annual Social Security and Medicare trustees' report released this week, reserves for the program – which covers the old age and disability insurance – will be depleted in 2035. At that time, continuing tax income will be sufficient to cover 79 percent of scheduled benefits.
However, those projections may deteriorate as a result of the pandemic.
Since many businesses around the country have been forced to close – and millions of Americans have lost their jobs – payroll tax revenue has declined. Unemployment benefits are not subject to payroll taxes, which fund Social Security and Medicare.
Employers and employees each pay 6.2 percent for Social Security and 1.45 percent for Medicare, and an addition 0.9 percent is levied on the highest earners.
Officials told reporters this week that even if employment rebounds by the end of the year, depletion of the funds would likely accelerate due to the economic shutdown, as reported by The Associated Press.
“With 26 million Americans filing jobless claims in just the last five weeks, it is easy to see that for this year, payroll tax receipts will be most likely much lower than in years past,” Matt Canine, a senior wealth adviser at financial planning firm East Paces Group, told FOX Business. “If we assume that the pandemic’s economic effects throw us in the high cost (negative) category, the trust funds could be depleted by 2031 in [the trustees’] estimation.”
Canine noted that an accelerated timetable for depletion of the program’s funding doesn’t mean people won’t receive benefits – they just won’t receive benefits in full.
Since making changes to Social Security is always a hot button political issue, Canine doesn’t believe any action will be taken to modify the program in the near future. Instead, lawmakers will likely wait to see how the pandemic affects next year’s trustees report, which will account for the effects of COVID.
But with debt levels piling up for the average American, Congress is eventually going to need to take action to bolster the program, Howard Dvorkin, chairman of Debt.com, told FOX Business.
According to data from the Federal Reserve Bank of New York, total household debt reached $14.15 trillion in the fourth quarter of last year – including $930 billion worth of credit debt and $1.5 trillion worth of student loan debt.
“With that kind of debt, Americans over the next decade are going to rely on Social Security more than ever before,” Dvorkin said. “If they don't get every dollar coming to them, it won't be the difference between visiting the grandkids or staying home. It'll be the difference between eating and starving.”
As of March, more than 69.4 million people were receiving Social Security, Supplemental Security Income or both. The average benefit was $1,387.26.
Combined, Social Security and Medicare accounted for about 41 percent of the federal budget in fiscal 2019.