Recent headlines have been aflutter about the looming Social Security shortfall. Per the Social Security Administration (SSA), benefits will run out in 2032. Cutting benefits or increasing payroll taxes are common, yet unpopular suggestions.
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Creativity may be necessary to avoid fund depletion. Out-of-the-box thinking may help avoid a crisis. Here are four such ideas that might help stabilize Social Security.
Tax High Investment Income
Social Security is largely funded through payroll taxes, at 6.2% each for employees and employers, per the SSA. Increasing the payroll tax, while understandable, isn’t desirable. Investment income, though, isn’t subject to such a tax.
A more strategic approach would be to tax high investment income, while leaving the payroll tax intact. Many high-net-worth Americans derive much of their income from stocks, allowing them to mitigate taxes, according to Yahoo Finance. The tax would need to be above a certain threshold, with all funds going to Social Security. And, it would ensure more Americans contribute to Social Security.
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Establish an AI Automation Dividend
Artificial intelligence (AI) is dominating the headlines, often driving fear of job loss for many Americans. If those fears become reality, it would mean less money for Social Security. Enacting an AI automation dividend could stem the tide, if done wisely.
The dividend would be triggered when companies realize productivity gains or cost reductions thanks to automation. It’s not a novel idea, either.
“Policymakers could consider creating universal dividends paid via royalties from AI companies,” according to the Urban Institute. Applying some or all of the funds to Social Security could help keep Social Security afloat. The Urban Institute highlights the Alaska Permanent Fund as a model for this solution, as it has worked for Alaskans since the 1970s.
Make COLAs Progressive
Retirees generally receive cost-of-living adjustments (COLAs) annually. However, all recipients get the COLA, regardless of their income level. Implementing a progressive COLA increase would guarantee that lower-income retirees don’t see benefit cuts.
In turn, higher-income recipients would receive a slightly lower COLA. The idea is similar to the COLA cap being discussed by the Committee for a Responsible Budget. In that case, people with higher lifetime incomes and greater benefits would see their COLAs capped. Over time, even slight adjustments to COLAs could create substantial savings, without widespread cuts.
Create a Small National Consumption Tax
Labor income is the key driver of Social Security income. Creating more funding diversity could help safeguard the trust fund. More taxes aren’t politically desirable, but a minor, targeted consumption tax could help drive more funding.
Like taxing high investment income, a targeted consumption tax means more people contributing to Social Security. If imposed on discretionary spending, such a tax wouldn’t apply to all consumption, but only certain purchases.
Fixing Social Security won’t occur in one fell swoop. Smaller, targeted ideas may be necessary. Getting outside the box and using creative thinking can go a long way to driving long-term health.
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This article originally appeared on GOBankingRates.com: 4 Out-of-the-Box Ways the Government Can Fix the Looming Social Security Shortfall
