Policymakers have a decade to strengthen Social Security—and they should. Contrary to some claims, Social Security is not in crisis. In fact, Social Security’s newly released Trustees Report shows that the program’s financial position remains largely unchanged from last year. Social Security’s Trust Funds hold assets worth $2.8 trillion. The Trustees project the program will be able to pay full benefits through 2034, after which approximately 75 percent of promised benefits would continue to be paid based on current tax revenue projections. Policymakers have a decade to consider and enact policies that would fill the gap between promised benefits and those payable with tax revenues, starting with fixing the eroding tax base upon which the program depends to increase revenues—an approach preferred by an overwhelming bipartisan majority of Americans.
Social Security’s Financial Position Remains Largely Unchanged
Every year, as required by law, the Social Security Trustees publish their annual report on the financial health of the Social Security program. Every year since 2012, the Trustees have projected the program will be able to pay full benefits up to some point between 2033 and 2035. This year’s report is no different, projecting that Social Security will be able to pay full benefits at least through 2034, just one year earlier than what last year’s report projected.
What this means is that the Social Security program is not “bankrupt.” Social Security’s Trust Funds—for Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI)—together hold $2.8 trillion in assets. Over the next eleven years, Social Security will continue to pay the vast majority of benefits owed through incoming tax revenues, and will redeem these Trust Fund assets as needed to fill the gap between income and costs. Thus, there are still about ten years before Social Security’s Trust Funds will be depleted. At that point, because Social Security doesn’t have borrowing authority, barring Congressional action to fill the gap, benefits would need to be reduced to what can be paid through tax income alone (that is, non-interest income), about 75 percent of promised benefits. (See Figure 1.)
The Largest Change in Projections Is Due to Improved Data and Methodology
The largest contributor to the somewhat worsened financial outlook is the Trustees’ use of new and improved data and methodology, which accounted for 32 percent of the change in financial outlook compared to last year.
The second-largest contributor to the change in the financial outlook is the shifting of the seventy-five-year period over which Social Security’s financial health is evaluated. For each year that passes, the seventy-five-year window for evaluating the finances of the program moves one forward year as well. For last year’s report, the window was 2022 to 2096, while for this year’s report the window is 2023 to 2097. It is important to understand that this shifting window accounts for just over 25 percent of the decline in the financial outlook, largely because a year without a large deficit (2022) is dropped and a year of a higher deficit (2097) is added.
New economic data and changes to economic assumptions account for about 22 percent of the change compared to last year. Within this segment, higher than expected inflation rates and lower than expected output growth were the dominant changes, reducing projected GDP and labor productivity. Higher wage growth and higher interest rates for the Trust Funds’ assets were not sufficient to offset those trends.
Changes to underlying demographic data and near-term assumptions contributed about 16 percent to the slight decline in finances. Sadly, increased death rates due to COVID-19 have helped the program, but lower fertility assumptions move the needle the other direction. Expectations for a declining number of immigrants due to the pandemic, and increased age of immigrants also reduced the program’s financial outlook.
It isn’t easy to quickly fix the demographic problem of an aging society, barring an increase in immigration—which Canada has pursued to help address their own aging demographic and workforce shortage. The economic factors contributing to future funding challenges are similarly subject to multiple variables, with many external forces driving them. The laws affecting Social Security’s revenues and benefits are the only elements fully within policymakers’ control.
Social Security Benefits Are Essential
Social Security protects families from the loss of income due to a worker’s death, disability, or retirement. About 94 percent of workers are covered under Social Security—with 97 percent of workers age 20–49 being covered for benefits for their survivors, and 90 percent of workers being covered for disability benefits. Social Security benefits were intended to be a floor for retirement security upon which employer pensions and other savings were to be built. However, the employer pension side of the retirement security puzzle has fallen short—less than half of those age 65 and older in 2017 had any employer pension income at all. Social Security was always intended to protect against economic insecurity, and so the benefits are not large. As of December 2022, the average monthly benefit was $1,825 for retired workers, $1,483 for disabled workers, and between $893 and $1,705 for survivors of deceased workers. Yet, despite the relative modesty of the program, it has been extremely successful in fulfilling its mission: without Social Security, 22.5 million more adults and children would be poor.
Despite the relative modesty of the program, it has been extremely successful in fulfilling its mission: without Social Security, 22.5 million more adults and children would be poor.
Social Security Is Work-Driven and Reduces Dependence on Welfare
Many policymakers ascribe to the point of view that public programs should encourage work, including even programs for the neediest among us. These individuals should therefore wholeheartedly support Social Security—a program for which work is in fact a key requirement to qualify for benefits. Furthermore, these earned Social Security benefits keep many individuals out of poverty, and thus off of the very same welfare programs to which these policymakers seek to add work requirements. Cutting Social Security benefits that have been paid for by work—in a program that requires ten years’ work history to achieve benefit eligibility—seems counter to that effort. It would behoove all of us to ensure that promised Social Security benefits are fully funded.
Social Security Is Affordable—It is a Question of Priorities
The Trustees Report shows that Social Security benefits were 4.9 percent of Gross Domestic Product (GDP) in 2022, and that income into the program was 4.5 percent of GDP—a gap of about 0.4 percent of GDP. At its highest point in the future, the gap between benefits and income is projected to be about 1.7 percent of GDP. By comparison, CBO’s most recent projections show corporate income taxes were only 1.7 percent of GDP in 2022, and are projected to decline to 1.4 percent of GDP by 2033.
The truth is, funding Social Security adequately is a choice—a question of values and priorities. And it is quite clear what the American public values: surveys consistently show the public prefers to pay more into the Social Security program than to endure benefit cuts. The March survey conducted by the University of Chicago’s National Opinion Research Center, for example, shows 93 percent of Americans believe the U.S. should spend the same amount or more on Social Security, not less. Even among voters who identify as Republican, 72 percent would prefer to pay more to fully fund the program.
Policymakers Have Time to Identify Ways to Fill the Benefit Gap
The Trustees Report shows we have sufficient time to fill the projected gap between revenues and promised benefits thoughtfully, with careful attention to the critical role Social Security plays in protecting the financial well-being of our widows and dependents, disabled workers, and older Americans. Policymakers should begin their efforts with an eye toward policies to increase the revenues Social Security receives, for several reasons:
- Social Security’s modest benefits are a work-based lifeline to many survivors, disabled workers, and retired workers, and benefit cuts will push more into poverty and onto welfare programs.
- The last package of major reforms from 1983 already relied to a greater degree on benefit reductions than revenue increases.
- The share of total compensation subject to the Social Security payroll tax has been shrinking, as more compensation is provided in fringe benefits not subject to the payroll tax.
- The share of total earnings in the economy captured by the Social Security tax has been declining, as the wage growth in the economy has gone more to higher earners above the Social Security tax cap (currently $160,200) than those below it.
- A bipartisan group of American voters would rather pay more to fully fund the Social Security benefits as they exist today, than see benefit reductions.