Social Security

The financial state of Social Security is getting worse …

and still, after a decade of warnings, Congress fails to address the issue.

Legislation has been introduced, but it goes nowhere amidst partisan animosity. In the meantime we get a flood of new spending proposals designed to sway voters. You should be incensed.

A SUMMARY PREPARED BY THE COMMITTEE FOR A RESPONSIBLE FEDERAL BUDGET

The Social Security Trustees released their annual report today (4-24-19), continuing to show that the Social Security program must address its funding imbalances to prevent across-the-board benefit cuts or abrupt changes in tax or benefit levels. They find:

  • Social Security Will Be Insolvent in Only 16 Years. Social Security cannot guarantee full benefits for current retirees. The Trustees project that on a theoretical combined basis, the trust funds will run out by 2035. That means the program will be insolvent when today’s 51-year-olds reach the retirement age and today’s youngest retirees turn 78. At that point, all beneficiaries will face a 20 percent across-the-board benefit cut, which will grow to 25 percent over time.

  • Social Security Faces Large and Rising Imbalances. The Social Security program will run cash deficits of nearly $1.8 trillion over the next decade, the equivalent of 1.8 percent of payroll or 0.6 percent of GDP. Program deficits will rise to 3.3 percent of payroll (1.2 percent of GDP) by 2040 and 4.1 percent of payroll (1.4 percent of GDP) by 2093. Social Security’s 75-year actuarial imbalance totals 2.78 percent of payroll, which is nearly 1 percent of GDP and $14.8 trillion in present value terms.

  • The Problem Is Similar to Last Year, but It Has Deteriorated This Decade. This year’s projected 75-year shortfall is slightly better than last year’s – 2.78 percent of payroll as opposed to 2.84 percent – due to improvements in the disability program’s finances. However, Social Security’s shortfall has grown dramatically since 2010, from 1.92 percent of payroll to 2.78 percent in this year’s report.

  • Lawmakers Must Start Making Changes Immediately. The sooner changes are made, the less severe they will need to be. Restoring solvency today would require the equivalent of a 22 percent increase in payroll taxes, a 17 percent reduction in all benefits, a 20 percent cut to new benefits, or some combination. Waiting until 2035 would increase the needed adjustments to overall taxes and benefits by over a third and would make it impossible to save Social Security with changes for new beneficiaries alone. Acting now would also allow policymakers to phase in changes gradually.

With Social Security only 16 years from insolvency, policymakers cannot afford to continue delaying action. Significant changes to revenue, benefits, or more likely both will be needed to secure the program. Refusing to make changes or compromises today to fix Social Security means putting the retirement security of 84 million beneficiaries and another 190 million workers at risk.

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Categories: Social Security

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6 replies »

  1. Atossa, Thanks for the information and the links. I will be very interested in what the Republicans say to this.

    I did notice that according to the summary in the Larson link, it said that the increase in the payroll deduction would cost the average wage earner 50 cents a week. But if you look at the first full year when the entire 1.2 % increase applies, assuming an average of $45,000 per year average wage, the increased deduction amounts to 10 dollars a week.

    In any case, the bill is on the table.

    Like

    • .

      The 1.2% increase is not all in one year…it is spread over several years.

      ” 50 cents per week to keep the system solvent – Gradually phase in an increase in the contribution rate beginning in 2020 so that by 2043, workers and employers would pay 7.4% instead of 6.2% today. For the average worker this would mean paying an additional 50 cents per week every year to keep the system solvent. [Sec. 203] ”

      https://larson.house.gov/social-security-2100

      .

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  2. Unless the political divide drastically narrows soon, an unlikely prospect, the Congress will make the minimum changes necessary to push back the insolvency date by a decade or two. But even this will be done no sooner than 2030. The most likely changes are a 2 to 3 % increase in the payroll tax for both the individual and his employer, and a lifting of the income limit to which the payroll tax applies.

    These will have the effect of slowing down if not stopping economic growth. This will result in high unemployment, more poverty, and of course more government programs to alleviate both.

    Our grandchildren will be paying a high price for Congress ignoring this huge problem.

    Like

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