Trump promised tax-free Social Security. Is it too good to be true?

President-elect Donald Trump has promised tax-free Social Security benefits. No taxes mean more money for individuals – but fewer funds going into the Social Security pool. A look inside how Social Security really works to figure out how best to save it.

Alicia Munnell, director of the Center for Retirement Research at Boston College. She is one of the nation's leading experts in retirement policy, 401(k)s, public pensions, and Social Security issues.

Edward Berkowitz, professor emeritus of history at George Washington University. He has been acclaimed as the leading historian on Social Security and of America’s welfare state.

Part I

During the campaign, now President-elect Donald Trump made many promises, including this one from one of his campaign ads.

DONALD TRUMP: I'm promising no tax on social security benefits.

CHAKRABARTI: Trump is referring there to the federal income tax some social security recipients pay on their benefits.

Only about 40% of Social Security recipients pay this tax because they also have other substantial sources of retirement income. The 60% of recipients who rely much more on social security for monthly survival do not pay this federal tax. So getting rid of the tax would increase the overall income of many seniors, but it could also cost the program its future, because those taxes go into the Social Security Trust Fund.

So how would Trump fill the gap created by his proposed tax cut? He was asked that question back in August by Fox News host Maria Bartiromo.

MARIA BARTIROMO: In a post on Truth Social, you said that seniors should not pay tax on Social Security.

TRUMP: Yeah.

BARTIROMO: And of course this made big news, but the Committee for a Responsible Budget says that will mean increasing deficits by 1.6 to 1.8 trillion dollars.

TRUMP: Because we can cut other costs, there's so much waste in our government. The other thing is --

BARTIROMO: So that's why I want to ask, where do you get the revenue to offset that? Because it's also apparently going to advance the insolvency date of Social Security's retirement trust fund.

TRUMP: One of the things good about that is that's when people will make a deal, you know that, but we're going to take care of social security.

We're not going to do anything to hurt our seniors. There is so much cutting. There is so much waste in this government. There's so much fat in this government.

CHAKRABARTI: Okay, I've found, in my many years of radio hosting now, that the way we in the media talk about social security borders on the irresponsible.

Journalists either don't fully understand the critical details of the program, or we're crunched for time or space and have to take verbal shortcuts, so we use language like trust fund, insolvency, and saving social security. And we use that language without explaining in detail what that political jargon, and it is political.

What it actually means. Worse, I'd say, there's just the presumption that people already understand all the ins and outs of this critical benefit. So let me ask you, do you know exactly how social security works? In detail. Really, do you? Do you know how that potential $8 trillion gap that Bartiromo was talking about, how that was calculated.

Do you know what advancing the insolvency date really means? Do you think that it means, poof, in 2033, maybe social security will just be gone? So I'm going to argue today that the critical mass of Americans do not fully understand those details, including me, which is why President-elect Trump can offer utterly empty phrases like so much fat and people will make a deal when talking about Social Security, and he can offer those phrases with basically no scrutiny or consequence.

So today, folks, like it or not, we're going to go to school. We're going to learn in detail about how the social security system works, where it is actually broken, and why. And with that foundational knowledge, then we're going to talk about how to really fix it. And Alicia Munnell joins us to do that.

She's basically one of the smartest people in the country about social security. She's the director of the Center for Retirement Research at Boston College. And knows all about retirement policy, 401Ks, public pensions, social security. Before joining Boston College in 1997, Professor Munnell was a member of the President's Council of Economic Advisors.

She was also Assistant Secretary of the Treasury for Economic Policy and spent 20 years at the Federal Reserve Bank of Boston. Professor Munnell, welcome to On Point.

ALICIA MUNNELL: Oh, I'm delighted to be here.

CHAKRABARTI: Okay. First of all, you're going to hear nothing but truth from me today about my own lack of knowledge. I didn't even know, until Trump had said all this, that some Social Security benefits were actually taxed.

So how, let's start there, how does the federal government decide who gets their benefit tax or what is the threshold?

MUNNELL: So this was a provision that was put in 1983, the last time that Social Security had serious piece of legislation, and they decided to set some thresholds above which people would pay taxes.

And so those thresholds are $32,000 for a single person and $40,000 for a couple, I'm sorry, $32, 000 and $25,000 for a single person.

CHAKRABARTI: Okay, and is that threshold that $32, 000 and $40,000, is that the threshold of the Social Security only benefits you get, or is it all your retirement income?

MUNNELL: It's all your income measured in a very particular way. But basically, those thresholds don't change over time. That is, they don't go up with inflation. So over time, more and more people are paying taxes on their social security benefits. And that is actually, in my view, a positive provision, because we have this big program.

We want to make sure that the vulnerable people, those with low wages, get as much as they need from it. But we want everyone to be in, taxing the benefits is a way to make it progressive, so that the lower paid get proportionally more than the higher paid. And it also brings in revenue, as you pointed out.

CHAKRABARTI: Which we'll talk about in a second, but Professor Munnell, I'm gonna again admit much to my shame. I'm already a little confused. In 2024, if a retiree is getting $40,000 or $32,000 as an individual, right? 30 something thousand.

MUNNELL: So it's $25,000 for an individual. $32,000 for a couple. Okay, so we can do a couple.

CHAKRABARTI: So $25,000. Let's talk about individuals. A $25,000 in retirement, overall retirement income, right? Which is social security plus whatever other sources of retirement income they have. If they're getting over that $25,000, they're going to pay some tax on the portion of that, that is the social security benefit.

MUNNELL: That means that their benefits will be included in their taxable income.

CHAKRABARTI: I see. Okay. Okay. I got you.

MUNNELL: So Meghna, can I just, I want to pick a fight right at the beginning. Yeah. I think this is actually a very simple system. Not because I'm so smart, but because it's very simple in design.

And I don't, you use the term broken, and I don't think it's broken. It was designed in the thirties. It's pretty applicable to the population in 100 years later, almost. And so it does have a financing problem, that is pretty straightforward to fix, all these proposals by candidates don't really help.

And if you want to go down a level, there are a lot of complexities. And I think the way that the taxes are, social security benefits or taxes, one of the more complex, but I think that it's nothing that for you and me, all we need to know is that for some people, they have a tax paid on their social security benefits.

Those monies go into, on the revenue side and help pay for benefits each year.

CHAKRABARTI: I love that you picked a fight.

MUNNELL: (LAUGHS)

CHAKRABARTI: And so it's got me all revved up now too. I don't actually disagree with you overall, but the point that I do disagree on is I think people should understand some of those deeper level details.

I really do. So bear with me, Professor. I'm relying on your expertise, and you are smart about this, because what I was trying to get to is, okay, I get it. Now you've clarified something important for me, that for an individual whose overall retirement income, including social security, is $25,000, is more than $25,000, that they will be taxed on that retirement income, yes?

MUNNELL: Yes.

CHAKRABARTI: Okay. The reason why I wanted to get that clear is that you said that it's not pegged to inflation. And quite frankly, $25,000 of income in retirement doesn't seem like that much to me. I feel like people shouldn't be, that's a low amount of income to be paying a tax on in your retirement.

MUNNELL: So we can talk about that. If I personally think that any provision in the government in government policy should be indexed for inflation. So you can set, if you're going to set a threshold, it should keep pace over time. I think this was purposely designed, so in the beginning, very few people paid taxes on their retirement income, on their social security benefits.

And over time, with those fixed thresholds, a greater percentage did. And I think about, as you said, 40%, I think between 40% and 50% pay taxes today.

CHAKRABARTI: Okay, so that's a lot of people. And how much, if you can ballpark it, of that tax, again, on the social security benefits portion, goes back into that so called social security trust fund.

MUNNELL: The way I look at it, it accounts for about 5% of total social security revenues.

CHAKRABARTI: 5%.

MUNNELL: All the other revenues come from the payroll tax.

CHAKRABARTI: Okay, 95% from payroll tax. Okay, I'm writing this down because I'm going to come back to it. But a 5% loss though, would be, like if President-elect Trump actually enacts this plan.

MUNNELL: Well first of all, can we just say --

CHAKRABARTI: I was gonna say, if he even could, but he can't.

MUNNELL: No he can't, this really requires Congressional action.

And I think the Congress is focused on the fact that this is the biggest, most important program to all Americans, and they know that there's a financing shortfall, a long run financing shortfall. And I think they would be loath to do something that reduces the money coming in, when in point of fact, what we need to do is increase the money coming in.

Part II

CHAKRABARTI: I just again want to check some numbers with you with this thought exercise of President-elect Trump convincing Congress to enact this cut on taxes on social security benefits.

I'm seeing some estimates that say it means that $135 billion, this is from Forbes, dollars could go back into the pocket of seniors, that's currently being paid into taxes. Does that number sound ballparky correct to you?

MUNNELL: I haven't, I have really been looking at it from the aspect of social security finances, and just in terms of social security finances, it accounts for about 5% of revenues.

And that has a, it has an impact, a negative impact on the program's finances.

CHAKRABARTI: So what would that negative impact be? That loss of that 5%?

MUNNELL: As I said, it's a fairly simple system. We get money in and money out. It operates basically on a pay as you go system. And we can talk later, if you would like, what that's true.

And so what's happening now is we're in a period where the cost of benefits exceeds the money coming in. In the short term, we do have a trust fund and we're using money from that trust fund to bridge the gap between revenues and benefits, that trust fund for the retirement program runs out in 2033, at which point all you will have is the money coming in and the benefits going as scheduled, benefits to go out.

And the money will cover only 79% of benefits, once the trust fund is exhausted.

MUNNELL: And so if you take out some of the money on the revenue side, you move up the date at which the trust fund is exhausted our estimates. It goes to 2031. But if it's 2030, at least a year. And that means that action needs to be taken because no one in this country, no one in Congress wants to see Social Security benefits cut across the board by 21%.

CHAKRABARTI: Okay, so at the risk of oversimplification. But you did say it's actually a simple concept.

MUNNELL: It's a simple concept.

CHAKRABARTI: I wanna just analogize this to the level of an individual. So I am a worker. I'm just gonna talk about budgets. Okay. I'm a worker. I earn, I'm just making up a number here.

I earn $5,000 a year, but my expenses are $6,000 a year. So in order to make up that $1,000 difference, I draw from my savings account, essentially. And I can do that for as long as there's money in the savings account. But when that runs out, I can no longer make that $1,000 difference.

And so therefore, I've got to reduce my expenses, right? That's essentially what we're talking about.

MUNNELL: Exactly. And under the law, it says Social Security can't pay benefits for which it does not have funds. So it has to drop back its benefit payments.

CHAKRABARTI: Okay. So this is a good point, Professor, for us to actually take a step back about how we got here.

And like you said, under the law. So I want to talk about the genesis of Social Security as a program in the United States. And that, of course, will take us back to the 1930s. So when President Franklin D. Roosevelt took office on March 4th, 1933, at that time, nearly 25% of American workers were unemployed.

And of course, the banking system had collapsed. Prices and productivity had fallen to a third of their 1929 pre stock market crash levels. The U.S. economy was the worst it's ever been, and FDR confronted that fact in his inaugural address.

FDR: Values have shrunk to fantastic levels, taxes have risen, our ability to pay has fallen, government of all kinds is faced by serious curtailment of income, the means of exchange are frozen in the current of trade, the withered leaves of industrial enterprise lie on every side, farmers find no market for their produce, and the savings of many years and thousands of families are gone.

More important, a host of unemployed citizens face the grim problem of existence and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

CHAKRABARTI: It was the Great Depression, and it spared no one.

EDWARD BERKOWITZ: The depression cut through the economy like a knife through butter, and really it affected many people who lost their jobs.

So that was people's great concern at the time. And as part of that, one of the groups that had trouble getting employment was the elderly, and the elderly were perceived as a group that was worthy of aid.

CHAKRABARTI: This is Edward Berkowitz. He's a leading historian of social security and professor emeritus of history at George Washington University.

And Berkowitz says that FDR formed a committee on economic security. And that committee was tasked with creating national benefit programs for things like unemployment, disability, public health, and old age. And when it came to so-called old age pensions, this wasn't a new idea. In fact, at the time, a majority of states were already doing it, but --

BERKOWITZ: it was not a very effective system.

In most states, it didn't cover all the counties. It paid very low amounts of money, but it's the basis that Franklin Roosevelt said we can build on that, and we can make this new thing. This thing, which is going to be, he's going to call old age insurance, which will really instill this idea that you can get this money as a basic right.

As opposed to a gratuity that the state gives you because you're poor or needy or worthy or whatever. So he proposed this idea which is basically bailing out the states in the programs that they had. And creating this new national program, which hadn't been done before.

CHAKRABARTI: The Roosevelt administration called this new national program Social Security.

And because it hadn't been done before, they had to iron out how it would actually work.

BERKOWITZ: Okay, what does it mean old people are going to get money? How old is old? And they decided that they would use the age 65, mostly out of convenience. And because it was a good round number, 65. Then they also had to decide okay, fine.

How are we going to do this? Taxing, power of the federal government was not very well developed at this point. Most people didn't pay income tax, didn't itemize their income tax. So the question became, how to fund this. And the thing that they came up with was this payroll tax. Which meant that you get this check, let's say, for $100 for your wages, and the employer would take out 1% of that, and the government would take out 1% of that, and that would go into a fund, and that fund would be used to pay Social Security benefits.

CHAKRABARTI: Now remember, this was 1935. Today, employers pay 6.2% and employees pay 6.2%, totaling 12.4% of payroll tax, compared to that original 2% during FDR's time. Also, the salary cap — and there is a cap on the level at which you pay the Social Security tax. That has increased. In 1935, up to $3,000 of a worker's salary could be taxed for Social Security.

Today, that cap is $168,000. Now, what made this program so unique is that it was not a handout.

BERKOWITZ: The Social Security, or old age insurance program, is a form of what we call social insurance. And the basic idea there is that you pay in something through this money that's been taken out of your paycheck, but in return you get benefits.

And the benefits are yours. You've earned them by paying these taxes. Therefore, it doesn't matter if you're rich, if you're poor, or whatever. You could be on a baseball team, but you still pay into Social Security, and you still get Social Security. So that's an entitlement.

You're entitled to those benefits.

CHAKRABARTI: Okay, now having everyone who's working pay in was a critical part of getting people to buy into this program, but nevertheless, not everyone was on board, such as private businesses, who would now have to pay into Social Security.

BERKOWITZ: They said, and a lot of people agreed with them, you are, you're taking money out of the economy by not giving people the same amount in their paychecks.

Why would you want to do that in 1935, when we have this economy that's there's a lot of unemployment and we probably need like more government spending, not less. This is just taking money out of the economy, just draining out some money. And it's going to be hard to rationalize economically.

CHAKRABARTI: But Democrats had control over Washington, basically, so the Social Security Act was able to beat out any opposition to it, and on August 14th, 1935, FDR signed it into law.

FDR: Today, a hope of many years standing is in large part fulfilled. The civilization of the past hundred years with its startling industrial changes has tended more and more to make life insecure.

Young people have come to wonder what would be their lot when they came to old age. The man with the job has wondered how long the job would last. This social security measure gives at least some protection to 30 millions of our citizens who will reap direct benefits through unemployment compensation, through old age pension, and through increased services for the protection of children and the prevention of ill health.

We can never ensure 100% of the population against 100% of the hazards and vicissitudes of life. But we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty stricken old age. It seems to me that if the Senate and the House of Representatives in this long and arduous session had done nothing more than pass this security bill, Social Security Act, the session will be regarded as historic for all time.

CHAKRABARTI: President Roosevelt in 1935. Now, Edward Berkowitz says that just because the law was passed didn't mean people started seeing Social Security benefits right away.

BERKOWITZ: They didn't begin collecting these taxes from people until 1937, and they weren't scheduled to pay regular benefits until sometime in the 1940s.

This started out with people very dubious about this. Here we're getting this tax that's being taken out of our paycheck. So we can see that, but nobody's getting benefits yet. It's not clear anybody will ever get benefits. And in 1950, Congress passed major amendments to the law. That put the social security benefits up to the level of the welfare benefits and beyond, and significantly also increased the percentage of the labor force that was participating in this program.

After 1950, benefits are better, more people are participating, more congressmen have a stake in the system, and it begins to become the popular program that it would eventually become.

CHAKRABARTI: That's Edward Berkowitz, Professor Emeritus of History at George Washington University and a historian of social security.

And by the way, right now, only about half of workers in the United States are covered by any retirement plan outside of social security. So millions of Americans do rely on it. Professor Munnell, thank you for listening back to that history with us, because it gives us the groundwork for me to ask some, again, simple, but I think important questions.

Because so much of how Social Security still works, as you pointed out, isn't all that different from when the SSA Act was, or the Social Security Act was passed in 1935. So talk to me, first of all, about the cap, the payroll tax cap, which is now $168,000. So people earning above that amount do not have to pay social security tax on those higher earnings.

Why is that?

MUNNELL: So this was to limit the tax to a level where it seemed reasonable to provide benefits. So I always pick on Bill Gates. If you tax Bill Gates, you have to make some decision, whether you're going to pay benefits on his contributions or not. And I think this was the compromise to have a level high enough that it captures most of earnings, but also limits benefits to a reasonable amount.

CHAKRABARTI: That is absolutely true in terms of a society that doesn't have the kind of lopsided income inequality that we have now, though. I'm wondering if this is one of the reasons, the cap is one of the reasons why, as you said earlier, there isn't enough money coming into the trust fund to keep it whole and healthy beyond 2033.

MUNNELL: I wouldn't say it was the reason, but when we're going to talk about fixing the financing problems of the system, taking the cap off or raising the cap is certainly on the table, and then deciding if you do either, the extent to which you want to provide some additional benefits, for those additional contributions.

The cap, I personally had thought long and hard about the cap. I've come down to the notion that we're aiming to gather 90% of earnings on the tax base, or that has been the lower, and that would take you up to a cap of about $300,000. And so my personal view, which matters not at all, is that you should have, we should raise the cap to about that amount, and provide some small token benefit for the additional contributions.

And that should be one component of a package to restore balance to the system.

CHAKRABARTI: Okay. We have about 30 seconds before our next break. Can you, I always ask these questions with no time to go, so I'll let you start and then I'm going to have to cut you off, unfortunately, but the idea that social security cannot draw from any other part of the federal government other than what's in the trust fund, that does date back, I believe, to the original act, and that seems limiting.

MUNNELL: I think, to me, it seems sensible. You wanted a program that is paid for, that people contribute while they're working, and they get benefits in retirement. The reason it is so popular and so robust and has lasted so long is that it, everybody feels like they're putting in and they're entitled to the money getting out, and it has a solid base.

It doesn't have to worry about ramifications of congressional decisions each year.

Part III

CHAKRABARTI: Professor Munnell, you had mentioned much earlier that under the Reagan administration, it was the last time that any meaningful change or improvement was made to funding Social Security. And that was when this tax on Social Security benefits was enacted. So here is that moment.

This is April 20th, 1983, when President Ronald Reagan signed into law the Social Security Amendment Act, establishing that tax on benefits for higher earners. And that legislation, by the way, was a compromise deal intended to keep the Social Security Trust Fund solvent.

RONALD REAGAN: The amendments embodied in this legislation recognize that Social Security cannot do as much for us as we might have hoped when the trust funds were overflowing.

Time and again, benefits were increased far beyond the taxes and wages that were supposed to support them. In this compromise, we have struck the best possible balance between the taxes we pay and the benefits paid back. Any more in taxes would be an unfair burden on working Americans and could seriously weaken our economy.

Any less would threaten the commitment already made to this generation of retirees and to their children. We're entering an age when average Americans will live longer and live more productive lives, and these amendments adjust to that progress.

CHAKRABARTI: President Reagan, April 20th, 1983. Professor Munnell, can you just explain why there was that difference between the revenue coming into the trust fund and the amount that the government had to pay out?

Or is still currently having to pay out in terms of benefits. What's causing this threat of insolvency of the trust fund?

MUNNELL: So we go back to the 1983 amendments and those amendments were designed to establish benefits over 75 years. That's the timeframe that the actuaries use. We, everyone knew at the time that we were having the costs as a percent of payroll continued to rise thereafter because we had the baby boom entering retirement. And so people knew that after that 75 years, that more money would be needed. So there's no surprises here.

The cost curve has looked the same all along and the revenue curves look the same all along. We've just, and we did have a really negative impact during the Great Recession, which has hurt productivity, which is an important component, so it's not surprising that we have to go back to Social Security again to look at how to close another 75 year gap.

We've known this for about 40 years. We're a little slow on the uptake, but it is not a huge intellectual exercise. The social security actuaries put out a booklet that has 150 options for raising taxes or cutting benefits or doing whatever you want to do to restore balance.

And all it needs is some political will to sit down and decide what you want the system to look like for 75 years.

CHAKRABARTI: (LAUGHS) I'm sorry. I'm laughing, but I love how you put that. This is not a huge intellectual exercise. And yet we can't seem to actually solve the problem. But I just want to be clear on something.

So right now, one of the major drivers of this reduction in the social security trust fund is, has to do with more people, like more retirees or more people moving into retirement than workers, current workers being able to pay into it. I just want to be clear.

MUNNELL: Yes. So, yes. The ratio of retirees to workers has increased and the costs, as of benefits, as a percent of payroll, because everything is like a percent of payroll, is high because of that.

And our tax rate, which was set in '83, has remained steady and so we have a gap between those benefit costs and the payroll tax.

CHAKRABARTI: I got it.

MUNNELL: Plus the taxation of benefits.

CHAKRABARTI: Gotcha. So benefits are going up because the cost of living is going up, but that --

MUNNELL: No, because so many people are receiving.

CHAKRABARTI: Oh, the actual number of benefits. Okay. Okay I got you, but as you're saying, the amount of revenue coming in from the FICA or the payroll tax has stayed the same, because the percentage is the same roughly.

MUNNELL: Yes. Percent hasn't changed.

MUNNELL: Has not changed. Okay. Again, this is making me laugh because as you lay it out so simply, it does seem wow, this is not Newtonian physics.

This is not calculus. This is like basic arithmetic. And yet --

MUNNELL: It's arithmetic. Yeah.

CHAKRABARTI: And yet I feel like every single president over the past 50 years has talked about how do we fix it? But hasn't been able to do that. And to illustrate that point, we actually just looked back to see what the last many presidents have said.

JOE BIDEN: If anyone here tries to cut Social Security, Medicare or raise the retirement age, I will stop you.

DONALD TRUMP: Remember this, I will cut all of the bad talk about Social Security. They're gonna destroy your Social Security, but I will not cut one cent from Social Security or Medicare.

BARACK OBAMA: But the fact is, we will not be able to solve this problem and protect Social Security once and for all until we stop treating it like a political football, and start treating it like the national treasure that it is.

GEORGE W. BUSH: Any reform of Social Security must replace the empty promises being made to younger workers with real assets. Real money. I believe the best way to achieve this goal is to give younger workers the option of putting a portion of their payroll taxes into a voluntary personal retirement account.

BILL CLINTON: Social Security is in better shape because of the declining inflation.

But do we have to have a longer-term reform of Social Security and Medicare, and should it occur before I leave office? The answer to both those questions is yes.

GEORGE BUSH: To every American out there on Social Security, to every American supporting that system today, and to everyone counting on it when they retire, we made a promise to you, and we are going to keep it. (CHEERS)

CHAKRABARTI: Ah, pure wind. That's my Orwell quote for the day, Professor Munnell. Okay so now's the time. Now's the time. I have my pens, pencil here in hand, and I am ready to hear from you. What your prescribed solution would be to fix social security or keep it fully solvent for Americans for generations to come?

Where would you start?

MUNNELL: Let me make the most important part, important point before I start, is the fact that if you ask some young people, they don't think they're going to get any social security. And in this simple exercise that we've been talking about. We know that the gap between benefits going out and revenue coming in is 21%.

That means that there's enough payroll taxes coming in overtime to pay 79%. No matter what.

CHAKRABARTI: Correct. And so we're arguing between, do we want to keep benefits at their current level and raise revenues to cover that gap, that 21% gap? Or do we want to cut benefits by 21%? And that's the place where the argument is.

So the bulk of the money, the finance, the social security program is there and will continue to come.

CHAKRABARTI: So this is so important. I'm so glad you said it's so important, because that's why I really great at the media's use of the words phrases like insolvency without actually explaining what it means.

MUNNELL: So it's a very harmful word to use actually, because the thing that's disappearing is the trust fund. And so that does go to zero, but the program's not going to zero. The program has virtually enough money, not virtually, it has enough money to pay 79% of benefits, but still, nobody wants to see benefits go down.

And so reasonable people could say we should compromise in the middle, do some on the benefit cuts and some on the revenue side. I am not a reasonable person. I want to have the maintained benefits at their current level. And so I search around for this list, on this list of 150 options, for things that would bring in more money. And that's, so I, that's where I focus. Other people would like to see benefits cut more.

And so they look at different items on the list. And so it really depends. That's why my personal view of what we could do is not important. The key thing is that there's a list of items that this, and the actuaries tell you exactly what it would do to close the 75-year gap, and then just one other part on that.

And then we can talk about some of the specific issues. And I think we should put in the law. The next time we do it, since we're so terrible at getting around to doing it, some automatic provision that says, and in the future, if the program gets out of balance, taxes should go up a little bit and benefits should be cut a little bit unless Congress acts.

So some automatic financing methods as part of the solution.

CHAKRABARTI: Okay. Can I just jump in here?

MUNNELL: Yeah, it's your program. (LAUGHS)

CHAKRABARTI: I think again, just to stress what you're saying. You're right. You keep mentioning those, the actuaries in there and the actuarial tables, the numbers don't lie. If you're just trying to make the balance sheet work, cutting benefits is absolutely an option, and we've had past administrations who've dangled that possibility, but they run away from it as soon as it's time to ask people to vote.

So I just wanted to note that. So now --

MUNNELL: But Meghna, can I just follow up on that? So that means that this might, in 1983, there was a commission. The commission wasn't really the sole source of this solution, but having some cover, sort of putting Republicans and Democrats in a room with this trust, to deal with this trusted program, has some merit. Because then they could come out with a proposal that would maybe reflect some compromise.

CHAKRABARTI: Okay. So now let's go through a quick, not quickly, but efficiently, your desired solution set. Again. So where would you start?

MUNNELL: So I would start on the money side. I would probably raise the payroll tax a little bit, a half a percentage point or something like that. Not enough to be a huge burden.

People love this program. They're willing to pay for it. I would also not do away with the taxation of benefits. I would raise the taxable wage base to about $300,000, but I would just give people a pittance on the difference between your $168,000 and the $300,000. I'd give them something.

So they feel like they were still contributing.

CHAKRABARTI: When you say give them a pittance, you mean give, when they, so their benefits, okay.

MUNNELL: The benefit formula is a progressive benefit formula so that it starts at 90% of, you average, you get your average index monthly benefits and then the benefit formula is applied to that.

And the percentages are 90% for low earners. And then the second batch is I think 32%, and the next batch is 15%. I might pay people 3% on all the additional contributions.

CHAKRABARTI: Yeah. So to put it simply if you raise the cap to $300,000, the people would be paying more in, in terms of their payroll tax.

But the difference they would get back, you're saying is, would be small. Okay. So got that.

MUNNELL: Okay. Then I would cover state and local workers. There's about 25% of state and local workers who are not participating. It creates a lot of equity issues, and it would bring in some more money in the short term.

If we could do this in a reasonably efficient way, time period, we would have a trust fund. I would think about investing some of those trust fund assets and equities, which over the longer run have produced higher real returns. You need to be careful on how you account for that. You don't want to make it sound like magic money.

And then I would, on the cut side, the thing I would do is raise the retirement age, but not across the board, because there's about half the population that has not really seen any gains in life expectancy, or any gains in healthy life expectancy. They cannot work longer, but as you go up the income earnings scale, those at the top can work longer, and that reduced their lifetime benefits and save some money.

So if you put this all together, it gets you close to solving the problem. Let me just go back and say, how big is this problem? So the 75-year deficit according to the Social Security trustees is 3.5 percentage points. So what does that mean? That means if we increased this combined old age and survivors and disability, the social security tax from 12.4% by 3.5 percentage points.

That we would have enough money to pay full benefits for the next 75 years. That's not the end of the story, but that's what we would have to do. So we don't need a 10% increase in payroll taxes revenues. It's 3.5%, and that's half on the employee, half on the employer.

And so that, it's a manageable thing. But you don't want to do it all with that, because that would put too much burden on lower paid workers. And so you want some other components that distribute it more across the board. But it's easy. Meghna, you and I could sit down in an hour, and I would share my booklet with you, and we would come up with a package.

It's really, it's not hard or complicated, it's motivating Congress to take action.

CHAKRABARTI: This seems like such an easy win for Congress, though, because like you said, Americans love Social Security. Millions of people rely on it. If you're talking about sort of fractional increase in the payroll tax or moving the cap, I think this would have a lot of buy in.

Oh gosh, now I'm down to 30 seconds, and yet we've gone, what, 40 years without being able to solve this, Professor Munnell.

MUNNELL: No, and it makes people so unhappy, and all these proposals to not tax benefits and not tax tips and not tax overtime, all these are just making the whole American public nervous for no reason at all. We should just fix this thing.