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Social Security Fix Could Cost Young Workers $157,000 in Extra Taxes, Study Warns

By Divya Verma
Social security is a dying phenomenon and will have empty coffers by 2033-34. A new analysis from Reason.com estimates that there may be a way to resolve the social security system’s ultimate demise. If there were a solution to this without reducing the benefits of millions of retirees it would be to increase the tax. It would especially be true for those who are just entering the workforce. The steep price to pay for it would be an average of $157,000 in higher lifetime taxes. https://youtu.be/lKQoe2SaS4Q?si=5vzXO-VQiJTSaaya Either lawmakers make a move or millions of people will lose their only source of livelihood in old age in the 2030s. The 2024 Social Security Trustees’ Report is here. According to it, Social Security’s Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds will be exhausted by 2033. It is so because it is funded by incoming payroll taxes. Once the trust is depleted, the benefits would be slashed by 23% automatically. The only way to stop this is if Congress intervenes. However, rather than paying attention to the problem that would render most Americans hungry and homeless, the current government has just passed the ‘Big Beautiful Bill’, giving the richest people in the country another tax break. Reason.com’s Jack Nicastro and Cato’s Romina Boccia have analyzed the crisis and found:
  • There needs to be a +3.65 point increase in payroll taxes, which means it would need to jump from 12.4% to 16.05% to restore solvency.
  • Taxes must be increased by a +5.2 point to eliminate the program's long-term deficit indefinitely.
  • For a typical 22-year-old who is just entering the workforce, these changes translate to:
  • A tax increase of +$3,465 per year, meaning nearly three weeks of annual income sacrificed.
An increase of $157,000 in taxes over a lifetime. It is a staggering burden from a system benefiting older generations. Reason.com had recently added a post with further perspective. According to them, an increase in payroll taxes by just 3.65 points means the median younger worker would take home $2,432 less per year. American Social Security operates under a pay-as-you-go model. Current workers' contributions fund current retiree benefits and surplus payroll taxes build trust fund reserves. https://youtu.be/XsqPdGPJjV4?si=IjJ6-zgKB-1LNZ2e However, today's retirees face an aging boom and fewer workers to support them. So, revenue is now insufficient. Another reason is tax breaks to billionaires who are not paying their share of taxes thus pushing the government and country into trillions of dollars worth deficit. The only alternatives are either people being taxed more, having their benefits cut, or raising the retirement age. It can not be any of these and needs to be some sort of combination of all three. There is a desperate need for a fiscal reform and without that, the system may face severe cuts or sudden tax hikes that would completely cripple the economy. Despite all the warnings, Congress has been struggling to address the social security issue. Young workers will bear the weight of tax hikes. And they are already expressing concern. Advocates argue reforms should share the burden equitably. It should protect vulnerable elderly recipients while balancing fiscal responsibility. As former trustee Charles Blahous warned, “Avoiding insolvency … would require an immediate 27% benefit cut or equivalent tax increases”. With insolvency only eight years away, no option is easy, but doing nothing is no longer viable.

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