Why Inflation Might Actually be Good for Social Security’s Future
By now we all know that the record inflation we’ve been experiencing has resulted in a giant Social Security cost-of-living adjustment (COLA). Benefits will increase by 8.7 percent next year. That’s the biggest increase in four decades.
This means the Social Security Administration will be paying out bigger monthly benefit checks in 2023 — about $146 more per month on average to individual retired workers. You might think funding this increase would drain the Social Security Trust Fund faster than its predicted 2034 deficit, but an article in The Washington Post says the increase in benefits might actually improve the long-term stability of the program.
Although it seems contradictory, economist Monique Morrissey believes inflation is good for the Social Security Trust Fund. Because one of the main drivers of inflation is rising wages, she says “since wages and COLAs are increasing, more money is taxable, both from payroll taxes and some of the increased Social Security benefits.” Remember, payroll taxes fund Social Security.
If the government is collecting more payroll tax it is helping fill the Trust Fund’s coffers. Of course, it’s also paying out more money in benefits…so it could end up being a wash.
Better Path to Stability
The only sure-fire way to bolster the Trust Fund is to increase Social Security’s tax revenues. Not only would this address the shortfall, but it would also restore solvency as the population ages.
The Seniors Trust supports the Social Security Expansion Act. Rather than instituting an across-the-board payroll tax increase, this bill will require the wealthiest Americans to pay their fair share. This legislation would lift the income tax cap, which currently stands at $147,000, and subject all income above $250,000 to additional Social Security Payroll tax. Under this bill, more than 93 percent of households would not see their taxes go up by one penny.
When passed, the Social Security Expansion Act will extend the solvency of the Social Security trust fund through 2096.
