Mark Cuban Has a Plan to Fix Social Security - And It's Not What You'd Expect

Social Security is a key income source for many retirees. And many people's retirement plans would fall apart without those benefits. But in the coming years, Social Security is expected to owe more in scheduled benefits than it collects in revenue due to a shrinking workforce. Once Social Security's Old-Age and Survivors Insurance Trust Fund runs out of money, recipients could be looking at a 22% benefit cut.

But that projection is based on current workforce trends. The problem is that AI is slowly but surely replacing human workers. And if automation accelerates faster than projected, benefit cuts could happen sooner.

Financial legend Mark Cuban has an idea that could help offset the loss of payroll tax revenue for Social Security caused by automation, but whether lawmakers choose to adopt it is a different story.

Cuban's solution to fix Social Security

Social Security's main funding source is payroll taxes. But as the labor force shrinks, the program is expected to collect less money in payroll taxes, which is expected to cause a shortfall.

Cuban's argument is that automation could shrink the labor force even more. To combat this, he's proposed a federal tax on AI tokens at less than 50 cents per million.

Cuban claims this tax could raise about $10 billion per year at the start. He also says that number could increase as automation picks up across more areas of the workforce. That $10 billion in revenue could help offset some of the lost payroll tax revenue Social Security desperately needs.

Why a solution is sorely needed

Even without automation, the U.S. workforce is shrinking. The Bipartisan Policy Center reports that in 1960, the ratio of workers to beneficiaries was more than 5-to-1. Today, it's only 2.9-to-1. Worse yet, that ratio is expected to fall to just 2.2-to-1 by the 2070s.

That's a problem, because without adequate payroll tax revenue, Social Security won't be able to keep up with its financial obligations. And it's not just retirees who might suffer.

Social Security also pays benefits to disabled workers, surviving spouses, and dependent children receiving benefits on their parents' records. Benefit cuts could have a huge impact on a wide spectrum of people.

Some are opposed to Cuban's idea

Of course, a proposal like Cuban's is unlikely to be met with enthusiasm across the board. And so far, there's some opposition. Anduril founder Palmer Luckey, for example, warns that Cuban's idea would simply impose a new financial burden on U.S. companies and give them a disadvantage against foreign competitors.

Plus, tracking AI usage requires the right infrastructure. That's a cost the government would have to bear in order to implement Cuban's idea, and it's unclear where that money would come from.

Congress needs to act quickly

Cuban's idea might help close Social Security's funding gap, but lawmakers have other options for preventing benefit cuts. They could opt to raise the current payroll tax rate, increase or eliminate the wage cap that limits the amount of earnings that are taxed to fund Social Security each year, or raise full retirement age, which is when seniors can collect their benefits without a reduction.

All of these solutions have drawbacks, though. Higher taxes, even if they're only imposed on higher earners, still burden the public, not to mention the companies that have to match those increases with their share. And raising full retirement age could either force workers to remain employed longer or force them into self-imposed benefit cuts due to not being able to keep working.

Bottom line

Social Security is one of the most important benefits for seniors. And the fact that the program is facing steep cuts in the near future is troubling not just for current retirees, but future ones who expect to depend on that income stream to stay afloat.

Lawmakers have numerous options they can look at to prevent Social Security cuts. But Cuban's idea may be worth considering given that the primary solutions being floated to prevent Social Security cuts all come with major drawbacks.

Of course, only time will tell if Cuban's idea ends up gaining more traction. While his proposal could save $10 billion per year to start, Social Security is facing a 75-year shortfall of $30.3 trillion. That's an annual shortfall of roughly $404 billion per year (though year-to-year shortfalls could fluctuate based on incoming payroll tax revenue and expenses).

Policymakers might take the approach that anything that can close the shortfall is helpful and pursue an idea like Cuban's. Or, they may be more invested in more sweeping solutions that help address the shortfall more broadly. But either way, Cuban's idea is certainly innovative. Whether lawmakers decide that it warrants a closer look is still up for debate due to the many questions it raises.