Final answer:
The government gets money to pay COLAs to Social Security recipients through a dedicated payroll tax, which contributes to the Social Security Trust Fund. Concerns about the solvency of this fund are growing due to demographic changes, and policy reforms may be needed to ensure its long-term sustainability.
Step-by-step explanation:
The U.S. government funds Social Security, including cost-of-living adjustments (COLAs), through a dedicated payroll tax on workers' wages. Historically, more money has been collected through these taxes than has been paid out, leading to a surplus. This surplus is held in the Social Security Trust Fund, which contains special non-marketable Treasury securities. As such, the proceeds from this fund are used by the government for various purposes, including paying COLAs to Social Security recipients. The Social Security program is a primary component of America's social welfare policy. The payroll tax is currently set at 12.4% of all wages up to a certain cap, which is split evenly between employers and employees, except for the self-employed who are responsible for the entire amount. This system, originally implemented as part of the New Deal, was designed to provide retirement benefits to workers once they reached the age of 65. However, concerns about Social Security's solvency have grown due to demographic shifts, such as the aging baby boomer population and longer life expectancies. As the number of beneficiaries increases and the size of the workforce contributing to payroll taxes decreases, projections suggest that the trust fund may deplete by 2040, if not addressed through policy reforms such as increasing retirement age, adjusting benefits, or changing payroll taxes.