Politics & Policies

Social Security in US – Rising wage inequality has eroded the finances of the system

This issue brief explores how rising wage inequality has affected the financial outlook of Social Security. We first provide a brief overview of Social Security’s funding structure and its current financial outlook based on the Social Security Administration’s, or SSA’s, most recent projections. Next, we highlight relevant wage trends that have impacted the trust funds’ solvency. Finally, we provide two simulations that highlight the impact that rising income inequality has had on Social Security’s finances over the past three decades.

The first simulation shows what the assets of the combined Social Security trust funds would be today if the average worker’s wages had kept pace with productivity growth between 1983—the year when the last round of major legislative reforms to the program was enacted—and 2013. We find that this wage growth would have increased the trust funds’ assets by $753.8 billion. The second simulation demonstrates what the trust funds would look like today if the maximum taxable wage base had remained fixed at 90 percent of earnings over the same time period. In this case, the trust funds would have at least an additional $1.1 trillion.

In their annual report, the Social Security trustees answer a related question about the future rather than the past: How would raising the cap to cover 90 percent of earnings—starting in 2015—affect the trust funds’ shortfall? They find that this change alone would close more than one-quarter of the expected 75-year shortfall in the combined trust funds.

The two simulations in this brief illustrate how recent trends in workers’ wages have eroded the finances of our Social Security system and put American families at risk. Yet while we cannot undo the past, it is not too late for policymakers to take appropriate steps to strengthen Social Security for current and future generations.

Capture d’écran 2015-03-02 à 08.06.31

Chosen excerpts by Job Market Monitor. Read the whole story at The Effect of Rising Inequality on Social Security | Center for American Progress.

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