Each year the trustees of the Social Security trust fund report on the current and projected financial status of the program. Their most recent conclusions were hardly a surprise. They were consistent with those published over the past 20 years. The Social Security Old Age and Survivors Insurance trust fund does not face an immediate crisis but does face a long-term funding shortfall that will affect its ability to meet its promises to future beneficiaries.
According to an analysis conducted by the Congressional Budget Office and included in the 2013 Social Security Trustees’ Report the program in 2010 began operating at a cash flow deficit, which means payments to beneficiaries exceeded tax receipts.
By 2021, benefit costs are expected to exceed Social Security’s total income, which consists of tax revenues and bond income. As a result, the program will need to begin selling bonds from the Trust Fund to pay benefits. In 2033, the Trust Fund will be depleted. At that point, with no bonds left, and with only payroll taxes to rely on, Social Security will be able to pay only about 75 cents on the dollar, with the shortfall growing quickly thereafter.
One excellent source that addresses the financial problems facing Social Security is “The Social Security Fix-It Book,” written by The Center for Retirement Research at Boston College. It states, “The only two ways to fix the problem are to cut benefits or increase revenues, but the longer we wait, the larger the benefit cut or tax increase needed to fix the problem.”
The researchers propose various ways that benefit cuts could be accomplished and the implications of each approach. These include immediate across-the-board cuts for current and future beneficiaries, raising the age we can claim benefits to more accurately reflect the trend toward longer life spans or reducing the amount of the cost-of-living adjustments to benefits. They go on to suggest that revenues could be raised by either increasing the payroll tax above the current 12.4 percent tax rate, or raising the amount of each worker’s income that would be subject to the payroll tax. The second option means that higher income earners would have more of their pay subject to the tax.