The nonpartisan Congressional Budget Office updated its long-term projections on Social Security’s solvency last month and found that the program’s main trust funds could be used in 2033.
The CBO’s analysis found that if the projected gap between trust fund disbursements and the income they receive occurs as projected, the trust fund balance would hit zero by 2033 and the Social Security Administration would not be able to pay in full. retirement benefits as they expire.
Specifically, the CBO found that the Old Age and Survivors Insurance Trust Fund would be exhausted in 2033 and the Disability Insurance Trust Fund would be exhausted in 2048. If the two trust funds were combined, the exhaustion date would be 2033.
REPUBLICANS SOUND ALARM ON SOCIAL SECURITY INSOLVENCY: TAXPAYERS ‘CLEARLY HAVE TO WORRY ABOUT’ RETIREMENT
Federal spending on Social Security has been on an upward trend as the proportion of Americans of retirement age or older has increased relative to the active labor force. That has strained the program’s trust funds, as their balances are used to raise payroll tax revenue used to pay full benefits to retirees.
The CBO projects this trend to continue for decades to come, with spending on the program rising from 5% of US gross domestic product to 7% in 2096, while revenue would remain around 4. 6% of GDP during that same period. This structural deficit is what would cause the depletion of trusts in the coming decades, barring reforms to shore up Social Security finances.
RETIREES FEEL THE IMPACT OF SOCIAL SECURITY CHECKS FALLING LOW LAST YEAR: REPORT
Over the course of the 75-year forecast, the CBO found that the Social Security actuarial deficit amounted to 1.7% of GDP, or 4.9% of taxable payroll. This means that balances in Social Security trust funds could be carried through 2096 if there were an immediate and permanent increase in employment tax rates of 4.9%, or if there were an equivalent reduction in benefits, or a combination of increases of taxes and benefit reductions.
The CBO analysis also looked at what Social Security benefits would look like after the projected depletion of trust funds in 2033.
SOCIAL SECURITY CHECKS WITH A RECORD RISE IN THE COST OF LIVING IN 2023 EXPECTED TO ARRIVE
It found that if Social Security benefits were limited to what is paid out of annual tax revenue, benefit payments would be about 23% smaller than scheduled benefits in 2034. The gap would increase as time passes and benefits payable would be 35% smaller by 2096.
Under current law, there is no formula for reducing Social Security benefits to what is paid based on payroll tax proceeds, so there is some uncertainty about what SSA would do and whether lawmakers would respond with reforms before the trust funds ran out.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
In the CBO’s analysis of the scenario in which Social Security benefits were capped at what is paid based on incoming earnings, it was found that the youngest age cohorts would see the largest change in their initial benefits and benefits for life because they generally will not start receiving payments until after the depletion of trust funds:
- Beneficiary cohorts born in the 1950s and 1960s would see little to no change in their initial benefits, while their lifetime benefits would be reduced by 9% and 19%, respectively.
- Beneficiary cohorts born in the 1970s, 1980s, and 1990s would see initial benefits reduced by 24%, 27%, and 28%; while lifetime benefits would be reduced by 26%, 27% and 27%, respectively.