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Social Security Affected by Persistent Unemployment Checks

Posted on Thursday, June 3, 2021
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by AMAC, Jeff Szymanski
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24 Comments
Social Security

Many economists and Republican governors have been fuming for months now about the so-called “Biden bonus” of paying people an extra $300 per week not to work through early September. Opponents of this scheme, passed in the last stimulus bill of March 2021 with Democrat votes only, note the bonuses are holding down job gains and even causing shortages and inflation, as employers up the ante with higher wages and signing offers to lure folks off the couch. Twenty-five governors, all Republican, have already terminated or announced they are soon terminating the $300 bonuses.

But politics aside, what is the impact of all this on the Social Security program?

It turns out it’s significant.

Why? People who collect unemployment benefits, as opposed to wages or salaries, do not pay the FICA tax (6.2 % to Social Security and 1.45% to Medicare), and neither do their employers. The longer millions collect unemployment rather than work, the more the Social Security Trust Fund suffers. As it now stands, the Fund is due to run dry after all surpluses currently being used to keep benefits whole are exhausted in about 2034. Benefits will then be cut for all by about 23% automatically. Experts think the reckoning date, though, may even be sooner due to the pandemic. We won’t know for sure until the 2021 report is released (any time now) by the Social Security Board of Trustees.

But it is worse still. People are actually doing damage to their futures, likely without realizing it, as time out of the workforce will affect their future monthly Social Security payments for the rest of their lives. That’s because Social Security uses one’s highest 35 years of earnings (adjusted for inflation) in calculating one’s monthly benefit. Throw a zero into that mix because one stayed out of the workforce collecting unemployment, and the benefit calculation will be significantly lower.

As stated, that kind of income is not credited.

Congress could rescind the bonus payments, but that appears off the table.

Congress will still have to fix the long-term issues by reforming the Social Security program, and the fixes become more difficult and painful the longer it waits. Essentially, to shore up its finances, there are three options—cut benefits, raise taxes, or increase the retirement age. That’s about it. Of course, a mix of any of those three can be applied as well, as in perhaps trimming benefits for the highest income earners.

But reform can never happen in the current toxic environment where any candidate or elected official who speaks the truth is hit with or accused of “cutting Social Security” or “throwing Granny off the cliff.” For years we’ve heard these ludicrous lines in commercials and campaign literature.

The public needs to understand Social Security’s financial problems in order not to fall victim to members of Congress looking only to their next election with lines like, “I pledge to increase everyone’s Social Security benefits.”

It’s a popular thing to say, and that is why so many members propose benefit hike bills. But it’s incredibly disingenuous. The tough, courageous, and righteous stance is to advocate for reforming the program to remain sound and stable and continue to exist as we know it for future generations.

AMAC’s Social Security Guarantee is designed to preserve and modernize the program without raising taxes on workers. One component is Social Security PLUS, a voluntary companion benefit (not privatization of the main program) that would allow all workers to have more money in retirement. See the full plan here.

Jeff Szymanski works in political communications at AMAC, a senior benefits organization with 2.4 million members. This piece is part of an ongoing attempt to inform Americans of the reality of Social Security’s precarious financial situation and to promote AMAC’s plan to preserve and modernize the program for successive generations.

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Dan W.
Dan W.
2 years ago

You forgot to mention the so-called “Trump bonus” of paying people an extra $600 per week not to work in 2020. How did that effect the Social Security Trust Fund in 2020 ?

JohnH
JohnH
2 years ago

Trump offered deferral of payroll taxes in 2020. How many people took this & did they have to pay this money back when they did taxes this year?? Trump said if re-elected, he would forgive this deferral but he did not win.

JohnH
JohnH
2 years ago

The FICA/Medicare taxes are only on wages & therefore if person was unemployed then did not pay these taxes. There were millions of people unemployed & so what is estimate of dollars not paid in to Social Security starting with big job loss last year. This is a much bigger impact than the extra $399 unemployment bonus.

JohnH
JohnH
2 years ago

Write your representatives & tell them your views on Social Security. Congress keeps kicking this down the road & leaving for the next group, and that is not prudent. Social Security checks are the main source of income to many of our retirees in United States.

sharon
sharon
2 years ago

Congress …or whoever it was that ‘borrowed’ from social security…needs to pay it back and it won’t be in quite such a mess. When soc sec was formed it was not suppose to be touched by anyone except those that earned it…..but government thinks they have a right to do what they want.

Felix
Felix
2 years ago

What’s the problem? I’m sure the federal government doesn’t worry about paying social security benefits, they will just keep printing dollars like they are doing to support illegal immigrants, global warming, Iran, Obama care, and all the other items in Biden’s 6 Trillion dollar budget. Just being factitious, the youth better wake up to what the democrats are doing to their future!

Marilyn
Marilyn
2 years ago

Why isn’t the welfare system in danger? Why are the hardworking Americans, who worked all their lives up to over 70 yrs., need to worry. Their money should be there for them. Well, because of the Democrats, our monies were used for other government policies instead of remaining untouched as promised when it was voted for. Now, we find it threatened because the policies of the Democrats use our dollars for more important things, like paying for abortions overseas and doing transgender studies overseas, and just ridiculous science projects. We just sent almost a billion dollars to South America for what? It won’t help the people there and the government officials will keep the money and enrich themselves. Why can they take our money and then spend it and cut us off? Why not stop giving money away to people that are here illegally?

Theresa Rodriguez
Theresa Rodriguez
2 years ago

Absolute #1 move should be to remove the law that says Social Security must buy US Treasury bonds with any “surplus”.

#2 move should be law forcing Congress to “repay” ALL funds removed from Social Security for their pet projects.

#3 move should be to privatize Social Security so that the workers and/or their heirs and/or their designated agents (like a bank) are the ONLY ones with access to that workers account. PERIOD.

Jannine
Jannine
1 year ago

“The tough, courageous, and righteous”….. non-existent in Washington Dc.

Jannine
Jannine
1 year ago

“The tough, courageous, and righteous”….. non-existent in Washington Dc.

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