Recent reports by the Congressional Research Service (CRS) have outlined its projections regarding how long Social Security will remain solvent and the consequences when that ends. The CRS also offers some ideas concerning what can be done to restore Social Security to better financial health and address those future concerns.
Past Proposals
CRS points out that, “Over the years, policymakers have put forth numerous proposals to balance Social Security’s finances and achieve other objectives” and that they typically included a mix of revenue increases and benefit adjustments.
“In the past, some proposals would have established a personal account component to the Social Security system to supplement or replace traditional Social Security benefits,” CRS writes. It observes that commonly offered suggestions included:
- increasing the amount of covered earnings subject to the payroll tax;
- increasing the payroll tax rate;
- raising the retirement age;
- modifying the benefit formula; and
- changing the annual cost-of-living adjustment (COLA) calculation.
The CRS quotes the Social Security Trustees in their 2019 annual report to Congress:
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.
The CRS continues that to illustrate how great the changes needed in order to maintain Social Security solvency over the next 75 years are, the trustees point out hypothetically that it would take an immediate 2.7 percentage point increase in the payroll tax rate, an immediate 17% reduction in scheduled benefits for all current and future beneficiaries, or some combination of them.
Striking a Balance
“Striking a balance between Social Security’s future revenue and benefit streams can prove challenging,” says the CRS, pointing out that increasing the taxable wage base or the payroll tax rate “could provide an equal amount of additional revenues.”
But those are imperfect solutions, the CRS indicates, noting that each would different groups, and that public opinion regarding those options also can vary. “Increasing the taxable wage base would affect only the estimated 6% of covered workers who have earnings above the current taxable wage base, while increasing the payroll tax rate would affect all covered workers,” the CRS says.
And what about timing? The CRS strikes a tone of urgency, noting that Social Security is the primary source of retirement income for many beneficiaries. “Given projections showing that in less than 16 years scheduled benefits cannot be paid, and the magnitude of the projected funding shortfall, policymakers generally agree that legislative action should be taken sooner rather than later,” it says.
