Social Security will be insolvent even sooner than previously expected, with automatic benefit cuts now projected to occur in 2033, according to a new report released Friday by the program's trustees.
The new projections underscore the limited time that's available for policy makers to deal with the fiscal problems that are quickly rotting away America's old-age entitlement program. The more quickly approaching insolvency date also draws a stark contrast with leaders of both major political parties—including President Joe Biden, former President Donald Trump, and House Speaker Kevin McCarthy (R–Calif.)—who have all, at times, promised not to touch Social Security during the ongoing negotiations over raising the nation's debt ceiling.
Ignoring the ticking clock won't make it run slower. In fact, Friday's report shows that Social Security's finances have gotten worse over the past year. The Trustees say that a combination of inflation and a worsening economic outlook for the coming years contributed to their more pessimistic projections.
If nothing changes, Social Security benefits will be subject to a 23 percent cut in a decade.
Though policy makers have been aware of the potential insolvency of Social Security for decades, it's no longer a problem that will affect Americans in the distant future. It's now something that will be a major disruption to many current workers nearing retirement and lots of the country's current retirees.
Since any changes to shore up Social Security's bottom line will likely require huge tax increases or changes to how benefits are paid, policy makers are also running out of time to implement those changes in ways that don't cause major disruptions to the economy and Americans' retirement plans.
"The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually," acting Social Security Commissioner Kilolo Kijakazi said in a statement accompanying Friday's report. "With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations."
Sadly, there's not much of any of those things in Congress these days. But creative thinking, in particular, is what Social Security needs. Much of the program's fiscal strain is the result of America's demographic changes since Social Security was created in 1935. Back then, the average life expectancy for Americans was 61. That means the average person died four years before qualifying for benefits. Now, with Americans living to an average age of 72 and older Americans being generally more financially well off than younger generations, Social Security operates like a perverse conveyer belt that transfers money from young workers to relatively wealthier retirees.
The most straightforward solution to Social Security's problem is to raise the payroll taxes that fund the program to make up for the shortfall on the benefit side of the ledger. But that would only exacerbate the problem by placing a bigger burden on younger, generally poorer workers.
According to the report, Social Security could be kept afloat for the next 75 years by hiking the payroll tax by 4.15 percentage points in 2034 (or implementing a smaller increase sooner). The payroll tax is currently charged at a 16.5 percent rate, with employers and employees each covering half. That works out to a nearly 25 percent tax hike. Alternatively, the report says, benefits could be cut by about 25 percent.
It's understandable why politicians are unwilling to choose between those equally unappealing options. But the current trend of ensuring—lying, really—to the electorate that nothing needs to be done must end.
There are some signs that it might. Sens. Bill Cassidy (R–La.) and Angus King (I–Maine), along with a small group of colleagues, are holding preliminary discussions about potential policy changes for Social Security. Semafor reported last month that the group is considering ideas like raising the retirement age to 70, changing the formula used to determine an individual's benefit payments, and raising the cap on the payroll tax, among other things. Even though the group has not presented anything resembling a fleshed-out plan, they've already been attacked for allegedly leading a "trojan horse" attempt at cutting benefits.
That's an indication of how fraught any attempt at staving off insolvency will be. Nonetheless, America needs a real conversation about Social Security's future—about whether it makes sense for everyone over 67 to get benefits even if they're wealthy, especially if it means a tax hike on current workers struggling to make ends meet.
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