The Social Security Trust fund is a fund which is run by the Social Security administration, employers and workers under the Social Security system contribute taxes and the benefits of the funds are paid to the survivors, disabled and retirees. In 2033, the Social Security Trust Funds are slated to exhaust which is three year before than the estimation made by trustees of Social Security board last year in the annual report. After the system is exhausted there will be enough capital only to pay to the three quarters of the total benefits that was promised earlier. The annual financial checkup results are here:
The effect of the payroll tax cut: In 2011, $103 billion was paid from the general fund of the treasury into the Social Security Trust Funds due to the deduction in the Social Security payroll tax. The executive vice president of AARP said that, “the reports confirms that Social Security Trust Funds are growing continuously and as the treasury had paid the borrowed funds, the payroll tax holiday had no effect on the programs solvency.”
Worker contributions: In the year 2011 around 158 million people paid payroll taxes in this trust fund. A sum of $24billion was added to the funds due to the taxation of benefits and $564 billion was contributed to the Social Security Trust Funds by the workers. The workers and employers from their pay contribute equally around 6.2 percent to the Social Security Trust Funds. Somehow, the contribution from the workers side was decreased to 4.2 percent in 2011 and also in 2012.
Income of investment:An annual interest rate of 4.4 percent, the Social Security Trust Funds earned a total of $114 billion in the year 2011. The U.S. treasury security grew to $2.7trillion in 2011 and it is estimated that it will further grow to around $3.1 trillion by the year 2021.
Paying the benefits: A total of 38 million retired people and their dependents, 11 million disabled and 6 million survivors of deceased workers got payment. A sum of 6.4 billion was spent in the whole program which was in other words 0.9 percent of the total expenditure.
Long-term deficit: The trust funds will be sufficient to pay the benefits for around twenty years more as estimated by the trustees. Although, there is a shortage of long-term funding. The secretary of treasury, Mr. Timothy Geithner says that, “the Social Security disability and retirement programs have sufficient funding and they will be able to get the benefits and resources for the next twenty years to come but there will be a major problems after that and the resources will be inefficient by 2033 to maintain the payment of benefits.” It is estimated by the trustees that by 2033 the assets in the trust funds will be exhausted.
A change is required:There are ways which would save the solvency of Social Security Trust Funds for the next 75 years as supposed by the trustees. An increase in the payroll tax of workers and employers by 1.3 percent will help the project. If there is no increment in the taxes now, then surely benefit payouts will decrease by 25 percent in 2033.