Last spring, the Social Security Trustees reported that the trust funds that pay a portion of benefits to contributors’ retirees and dependents would be exhausted by 2034. a recent Congressional Budget Office (CBO) report shortened that timeline by a year.
This does not mean that the Social Security Administration would stop making payments to recipients, but benefits would be reduced. That is unless action is taken to support the programs that provide a vital financial lifeline to millions of Americans.
What did the CBO report say about Social Security funds?
This is evident from the CBO report on long-term social security projections if Social Security paid benefits as planned, the Old-Age and Survivors Insurance Trust Fund would exhaust its funds by 2033. The Disability Insurance Trust Fund would hold out a little longer, but not much, until 2048. These scenarios would pass if nothing is done, and merging the two to buy some time is not an option, both would be empty by 2033 if they are combined.
Social Security could still make payments to beneficiaries distributing funds from the payroll taxes it collects from employees who contribute to the system. However, those only cover about 77 percent of benefits paid to recipients, which means a 23 percent reduction in payments. But the story doesn’t end there.
Those who started claiming benefits before 2034 would see no change in their initial benefits, but because they will receive smaller benefits after the trust funds are depleted, they will receive less during their lifetime than in the planned benefits scenario. Beneficiaries in later cohorts, those born in 1969 and later, would see deeper reductions in their benefits.
What changes need to be made to ensure social security solvency?
The CBO estimates that the 75-year actuarial shortfall of the Social Security pension program is equal to 1.7 percent of GDP. This amounts to 4.9 percent of the taxable wage bill, that is comparable to last year’s predictions by the CBO. To ensure that the federal government maintains necessary trust fund balances and pays benefits prescribed under current law through 2096, CBO says that payroll taxes must be increased immediately and permanently by about 4.9 percent.
This would increase from 12.4 percent of the taxable wage bill under the current law to 17.3 percent, which is split between the employee and the employer, with the self-employed paying the full amount but receiving a tax break. Alternatively, Social Security benefits could be reduced by 4.9 percent or a combination thereof and payroll taxes increased by that amount.
That wouldn’t be a panacea for Social Security, though, because there would be annual surpluses for two decades, but annual deficits after that. making the program financially unsustainable after 2096.
The CBO states that its forecasts of expenditure and income for Social Security are up to and including 2096 subject to great uncertainty due to possible changes in population or economy. Over time, the differences could be particularly large as the underlying projections would increase.
What is being done to save Social Security?
Lawmakers are considering proposals to make Social Security solvent in the future, including raising the cap on taxable wages. Currently, income over $160,200 is not taxed. In the previous Congress, Democrats proposed a package known as Social Security 2100: A Sacred Trust, which aims to expand and boost Social Security funding. However, it failed to gain traction as lawmakers grappled with numerous other legislative proposals.
As Congress is in a stalemate over raising the debt ceiling which would be a clear and present danger if it didn’t happen benefits and the US economy as a whole, not to mention the global economy, social security changes have been put on the table. Republicans, who have a narrow majority in the House of Representatives, want cuts before approving to raise the US loan ceiling to pay previously approved spending, Social Security and Medicare are considered fair game.