A new report shows that the Social Security system’s main trust fund will be depleted by 2035—one year later than a prior estimate, though concerns remain about the fund’s solvency.
The Social Security Board of Trustees released its annual report on May 6 that projects that the Social Security trust fund, which consists of the combined asset reserves of the federal Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds, will become “depleted” in 2035.
At the point that the combined fund runs dry, Social Security will only be able to pay out 83 percent of scheduled benefits.
In a fact sheet, the Treasury Department said that the improvement in the long-term finances of the Social Security fund was mostly due to an upward revision to labor productivity over the projection period based on stronger economic growth, combined with a lower assumed rate of workers going on long-term disability.
Martin O’Malley, commissioner of Social Security, said in a statement that the projected one-year delay in the fund’s go-broke date is good news for the millions of Americans who depend on Social Security. Still, he warned that the threat of the shortfall continues to loom large unless Congress takes action to extend the health of the fund.
“Eliminating the shortfall will bring peace of mind to Social Security’s 70 million-plus beneficiaries, the 180 million workers and their families who contribute to Social Security, and the entire nation,” he said.
Congress could eliminate the shortfall by increasing revenue, reducing benefits, or some combination of the two.
A Republican task force recently proposed a solution that involves raising the retirement age to account for increases in life expectancy while reducing auxiliary benefits for high-income earners.
Last year’s annual report from the Social Security Board of Trustees projected that the Social Security trust fund would run dry by 2034. The estimates are subject to revision in each annual report based on the way the economy is performing and how much people pay into Social Security.
The latest report also revealed a five-year pushback in Medicare’s go-broke date for its hospital insurance trust fund. Thanks in part to higher payroll tax income and lower-than-projected expenses from last year, the insolvency date of the Medicare Hospital Insurance Trust Fund has been pushed back to 2036.
President Joe Biden issued a statement on May 6 in response to the report, proposing to raise taxes on wealthier Americans to extend the fund’s solvency.
“I am committed to extending Social Security solvency by asking the highest-income Americans to pay their fair share without cutting benefits or privatizing Social Security,” the president said.
What’s the Fix?
Democrats have proposed bolstering the fund’s finances by asking wealthier Americans to pay more in payroll taxes, with the Social Security tax currently capped at 6.2 percent of the first $168,600 of employee wages.
A plan introduced in 2023 by Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), along with Reps. Jan Schakowsky (D-Ill.) and Val Hoyle (D-Ore.), proposes to raise payroll taxes on 7 percent of the highest earners, which would keep the OASI fund solvent through 2096.
The plan, called the Social Security Expansion Act (pdf), calls for applying the payroll tax on all income above $250,000 per year, among other provisions.
The Heritage Foundation, a conservative think tank critical of the proposal, estimated that the Social Security Expansion Act would impose a total of $33.8 trillion in new taxes, exacerbating the strain on workers and families, and causing “significant economic damage.”
Some Republicans have proposed adjustments to entitlement eligibility criteria and privatizing parts of Social Security.
Sen. Mike Lee (R-Utah) said in an October 2022 interview with the Daily Herald that, after getting the Social Security fund solvent, lawmakers should consider identifying a portion of social security payments that could go into a private account.
Supporters of this proposal have argued that it offers a practical solution to a pressing problem, while opponents say it’s reckless to subject tax dollars to the high risk associated with higher-return investments like stocks.
Republican Task Force Proposal
In March, a GOP task force made up of the biggest group of conservatives in the House released a proposal to reform Social Security and avert the fund’s insolvency.
One possible remedy is debt-financed general fund transfer, which the RSC argues isn’t sustainable because it would effectively lock in enormous deficit spending that would expose taxpayers to more than $200 trillion of debt, excluding interest, through 2096.
Another option that is often proposed by those on the left side of the political spectrum is raising taxes. Democrats have proposed raising the upper limit on the level of income subject to payroll taxes, which is currently capped at $168,600.
The RSC blueprint argues against this approach, claiming that applying the payroll tax to all earnings would not only result in the biggest tax increase in U.S. history but also fail to make Social Security solvent while eliminating jobs.
While the GOP task force examines several possible solutions, it has also proposed making a combination of slight changes to the primary insurance amount formula, making a “modest adjustment” to retirement age, and limiting and phasing out auxiliary benefits for high-income earners.
The blueprint makes clear that the proposal “does not cut or delay retirement benefits for any senior in or near retirement.”
“Additionally, the RSC Budget would promote trust fund solvency by increasing payroll tax revenues through pro-growth tax reform, pro-growth energy policy that lifts wages, work requirements that move Americans from welfare to work, and regulatory reforms that increase economic growth,” reads the document.
The White House has panned the proposal, claiming it would cut Social Security and give more tax cuts to the wealthy.
From The Epoch Times
