A Way to Help Save Social Security

By Douglas A. McIntyre Published Jan 7, 10:15AM EST

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One way to extend the lifespan of Social Security is to waive the taxes on Social Security payments.
Yet, the impact this change would make is difficult to determine.

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Depending on who is counting, Social Security runs out of money in 2033. At that point, benefits paid will be about 77% of what they are today. Congress offered a little-known solution. It listed two reasons why Social Security payments are taxed. One was to treat payments like those of any other income. “The second was to provide revenue to strengthen the financial solvency of the Social Security trust funds.” The second point is important.

One way to extend the lifespan of Social Security is to waive the taxes on the payments. On paper, this means the burden triggers an increased U.S. deficit as some of the federal government’s income drops. However, those who receive payments keep more money.

The math is not easy to come by, but it is something like this. The annual total of these payments is about $1.5 trillion. Payment to the disabled and dependents is about 10% of that, according to the Social Security Administration.

What does the federal government receive on these taxes? It is not entirely clear. However, across most sources, the figure is about $90 billion a year. Old-Age and Survivors Insurance and Disability Insurance (OASDI) accounts for at least $51 billion of that. Medicare Hospital Insurance (HI) represents at least $35 billion. So, the total benefit for recipients depends on which payment segments the taxes affect.

The effects of the tax change would have a long-term impact. Congress reports that the percentage of Social Security recipients who do pay taxes will rise sharply between now and 2050.

It is difficult to calculate the exact benefit of decreased taxation. However, it is not de minimis. According to Pew, “The main issue is with Social Security’s retirement program, whose costs have exceeded its income every year since 2021. The gap, which was $70.4 billion in 2023, is projected to balloon to $414.5 billion in 2033.”

How much time does the elimination of taxes buy in terms of when Social Security runs out of money? Someone smarter than I am would need to provide a correct answer.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.