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Bolstering Social Security’s Future

It’s a fiscal Sword of Damocles hanging over America’s future: If no changes are made to the way we operate and finance the Social Security system, its trust fund will run dry around 2033, after which the program will have to pay for itself through ongoing payroll taxes. Those will only be sufficient to cover benefits at about 66% of current levels, according to Olivia Mitchell, professor of business economics and public policy at Wharton.

The most common solutions that have been suggested to avoid that unpleasant eventuality are raising the retirement age, cutting benefits, increasing payroll taxes or lifting the payroll tax cap on incomes above $118,500 — earnings upon which the wealthy currently pay no Social Security taxes at all. Politically, all of these options are deeply unpopular to one faction or another.

But Mitchell, a recognized expert on retirement and Social Security, has done research that supports a novel way to boost the trust fund’s life span, in a way that is revenue neutral. Her study is being published as an issue brief by the Penn Wharton Public Policy Initiative. The brief was co-written with Raimond Maurer, a professor at Goethe University, Ralph Rogalla, a professor at St. John’s University and Tatjana Schimetschek, a research assistant at Goethe University. Mitchell recently spoke with Knowledge@Wharton about her findings. More: