Far-Reaching Effects of This Pandemic on Social Security and Taxes
Long after the restaurants and hotels are open again, the economic impact of the COVID-19 pandemic will still be felt by many individuals and the country. During this time of widespread unemployment, less is collected in payroll taxes that fund Social Security, while emergency federal spending has increased significantly. Here are potential far-reaching effects of this pandemic on Social Security and taxes.
The State of Social Security
The 2020 Social Security report projects that the fund for retirement benefits will run short in 2034. According to the report, payroll taxes would cover 76% of promised benefits. However, these figures refer to before the coronavirus lay-offs: With increased joblessness, Social Security could be in jeopardy as less is collected in payroll taxes. There aren’t currently plans to raise payroll taxes. In fact, there is the possibility of a payroll tax cut in response to the COVID-19 crisis.
Even without a payroll tax cut, high unemployment will lead to reduced revenue, and to more people claiming benefits early. In 2009, 42% of 62 year-olds claimed benefits, up from the usual 37%. If there’s a similar trend this time around, it will mean more strain on the already strained system. While it’s unlikely that Social Security will ever go away completely, there could be adjustments like benefit cuts or higher taxes.
The recent surge in government spending and an already large deficit could mean a larger tax bill in the future. The CARES Act alone cost over $2 trillion, and Federal Reserve Chairman Jerome Powell recently called for more federal spending. U.S. government debt could soon rise to 130% or 140% of gross domestic product compared to last year when it was around 100%. Many experts predict that this could lead to higher taxes in the future, as it did after the government spending during WW2. Also, keep in mind that the Tax Cuts and Jobs Act will expire at the end of 2025. This may mean you need to pursue different strategies or update your estate plan.
Better than reacting to change is planning for it: There are ways an advisor can help you with tax strategies, including long-term strategies. If we’re enjoying historically low tax rates right now, should you take advantage? A financial advisor can help you create a long-term tax minimization strategy as part of a comprehensive retirement plan. Contact us to find out how we can create a plan to fit your unique needs.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of BML Wealth Management’s employees providing such comments, and should not be regarded as a description of advisory services provided by Cooper Financial Group. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog constitutes investment advice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future returns.
Investment Advisory services are offered through Cooper Financial Group, an SEC Registered Investment Advisory firm. All Insurance Services are offered through BML Wealth & Insurance Services. California Insurance License #0M15550. BML Wealth Management & Cooper Financial Group are not affiliated.
We do not provide tax or legal advice, all individuals are encouraged to seek guidance from qualified professionals regarding their personal situation. Any references to protection benefits or steady and reliable income streams in this guide refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured. Indices mentioned are unmanaged and cannot be invested into directly.
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