A new government report shows that the Social Security system’s main trust fund will be depleted by 2033, one year sooner than a prior estimate, adding to concerns about the fund’s solvency.
The Treasury Department has released a report following a meeting of the Social Security Board of Trustees, in which it warns that the federal Old-Age and Survivors Insurance (OASI) Trust Fund will become “inadequate” within the next 10 years.
The OASI trust fund is primarily used to pay retirement, spousal, and survivor benefits to eligible individuals and their families.
A report detailing the Trustees’ findings (pdf) shows that the worsened financial situation of Social Security is mostly because of a deteriorating economic picture, in part due to inflation. Projections for economic output and labor productivity have been downgraded by around 3 percent compared to last year’s estimates, bringing forward the date by which the fund will run out of money.
Treasury Secretary Janet Yellen said in a March 31 letter (pdf) that the OASI trust fund’s “reserves will fall below 20 percent of annual cost by the beginning of calendar year 2033 and will become depleted in 2033 in the absence of legislation to address this imbalance between scheduled benefits and revenue.”
Yellen urged lawmakers to take “prompt action” to address the looming solvency crisis, which could include boosting revenues, reducing outflows by modifying benefit eligibility requirements or levels, or some combination of the two.
Kilolo Kijakazi, acting commissioner of Social Security, said Congress should act quickly so that the necessary changes to address the trust fund shortfalls could be phased in gradually.
“Social Security will continue to play a critical role in the lives of 67 million beneficiaries and 180 million workers and their families during 2023. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations,” Kijazaki said in a statement.
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 $160,200 of employee wages.
A plan introduced recently 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 legislation that we are introducing today will expand Social Security benefits by $2,400 a year and will extend the solvency of Social Security for the next 75 years,” Sanders said in a statement.
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, has 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, “making all but the oldest generations worse off” and causing “significant economic damage.”
While President Joe Biden hasn’t offered any concrete plans to address the Social Security solvency crisis, he said in a budget document (pdf) that he looks forward to working with Congress “to responsibly strengthen Social Security by ensuring that high-income individuals pay their fair share.”
Republicans, meanwhile, have taken a different approach, proposing adjustments to entitlement eligibility criteria and privatizing parts of Social Security.
Former Vice President Mike Pence said in February that conversations should be had about reforming Social Security.
“There are modest reforms in entitlements that can be done without disadvantaging anybody at the point of the need,” Pence told an audience at a meeting of the National Association of Wholesaler-Distributors.
Pence suggested that the government could allow young Americans to put part of their Social Security withholdings into a private savings account that’s subject to government oversight. This fund could potentially generate higher returns than current Social Security accounts.
In a similar vein, Sen. Mike Lee (R-Utah) said in an October 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.
Sen. Bill Cassidy (R-La.), in a recent interview with MSNBC, also suggested establishing a separate investment fund to supplement Social Security.
“The centerpiece is to create a fund—separate from Social Security—to allow an investment strategy which will grow over time and help Social,” Cassidy said. “The main thing we’re talking about in our approach is this investment fund that actually bails Social out.”
Cassidy said that this approach would be low-risk for current recipients, as the separate fund would bear the majority of the investment risk.
“There is no risk for the person working back home,” he noted. “The risk will be borne by the fund.”
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.