Debt Ceiling Deal Sacrifices Social Security?
It should therefore come as no surprise that those who advocate for Social Security should be incensed by a particular clause in the Biden-McCarthy debt ceiling deal.
This clause necessitates the president’s retreat from his efforts to crack down on tax evasion, all so McCarthy and House Republicans would agree to prevent a default on America’s debts, Market Watch reported.
A mere two years ago, the administration successfully enacted an additional $80 billion for the IRS to bolster its enforcement capabilities. The plan included the hiring of approximately 87,000 IRS agents.
Of course, criticisms about taxes and the IRS are to be expected. However, the issue at hand is not about tax rates, but rather about ensuring that everyone pays their fair share.
The Congressional Budget Office estimated that the increased funding for the IRS would have reduced the deficit, as the returns from cracking down on tax evasion would have more than covered the expenses. However, an estimated $21 billion out of the allocated $80 billion has been cut.
To put this into context, Social Security currently faces an annual deficit of $80 billion. This deficit represents the projected shortfall between benefits and payroll taxes for this year, as reported by the Social Security Administration’s trustees.
Next year, the deficit is expected to exceed $150 billion, and by 2026, it could reach $200 billion and continue to rise. If no additional payroll taxes are introduced, the trust fund will be depleted by 2034, resulting in a reduction of benefits by at least a fifth.
Tax Evasion Amounts
The IRS estimates that tax evasion amounts to approximately $470 billion annually, based on outdated figures from 2019. This figure accounts for enforcement efforts.
However, the Treasury Inspector General for Tax Administration suggests that this estimate is conservative. In terms of percentage, tax evasion constitutes around 12% of all taxes owed, including payroll taxes, and approximately 2.3% of GDP.
Over the next decade, based on similar ratios, tax evasion is projected to amount to an additional $3.3 billion.
While Social Security’s trust fund is technically separate from other government finances, this distinction holds little practical significance. Social Security is the nation’s retirement plan, and its financial stability is crucial. Without changes, the program will be forced to make severe benefit cuts by 2034.