One of the major talking points surrounding Social Security is the projection that a trust fund that helps pay for the program will be depleted by the middle of next decade. The projection has been used as a political football to rationalize other cuts to Social Security, often backed by the notion that the program will go broke otherwise.
That’s not the case, experts say — or even close.
The fund in question, called the Old-Age and Survivors Insurance (OASI) Trust Fund, is essentially a surplus of money that has been building for decades thanks to so many baby boomers paying into Social Security through payroll taxes. While FICA payroll taxes accounted for 90% of Social Security’s revenue in 2021, AARP reported, most of the rest was funded through the OASI trust fund and interest earned by the fund.
Now that most of those same boomers have reached retirement age and started collecting Social Security, the trust fund is being quickly depleted. It’s expected to run out of money anywhere from 2033 to 2035, depending on who’s doing the calculating.
When that happens, payroll taxes will only be able to fund 77% to 80% of retirement benefits (again, depending on who’s doing the calculating). The Social Security Administration expects that figure to drop to 74% around the year 2095.
These projections have left some wondering why deep Social Security cuts are being proposed when the program will still be about three-quarters funded 72 years from now.
Nearly everyone agrees that when the OASI runs out of money, future Social Security recipients will likely face smaller benefits than current recipients. It’s simple math — with one source of funding gone and the other unable to make up the shortfall, benefits will either have to be reduced or revenue increased to pay for the program.
Some lawmakers propose raising more revenue by increasing the Social Security payroll tax rate from its current 12.4% to 15.6% following the trust fund depletion, and then gradually increasing it to 16.7% by 2095. Another proposal is to raise the income threshold on when Social Security payroll taxes no longer apply. In 2023, any yearly income above $160,200 is no longer subject to Social Security taxes. Some lawmakers have proposed raising the limit to $250,000 or more.
On the other side of the spectrum, proposals to restore balance include having Congress immediately cut scheduled benefits by about 20% to account for the projected shortfall. The required reduction would gradually increase to 26% by 2096.
A plan released last summer by the Republican Study Committee would realign the Social Security full retirement age to account for increases in life expectancy. Doing this means the FRA for Social Security would increase to age 70 from the current FRA of 66 and 67 years old, which would theoretically bolster Social Security funds.
But other lawmakers have offered up remedies that some critics say go too far.
Former Vice President Mike Pence, a possible 2024 presidential candidate, recently proposed privatizing part of Social Security. U.S. Sen. Rick Scott (R-Fla.), another potential 2024 candidate, has proposed sunsetting Medicare and Social Security in five years, which would allow Congress to either pare the programs down or completely gut them, The Palm Beach Post reported.
These kinds of proposals have not gone over well in certain quarters. Critics of gutting Social Security point to a report from the Center on Budget and Policy Priorities, which said that “without Social Security benefits, 37.8% of older adults would have incomes below the official poverty line. With Social Security benefits, only 9% do.”
Meanwhile, Forbes recently cited SSA data showing that 21% of married couples, 45% of single retirees and 15% of women rely on Social Security for more than 90% of their income. Drastically cutting benefits would put most of them in dire financial straits.
Some leading lawmakers have been quick to defend Social Security — and quell fears that it is headed for the cutting board. U.S. House Speaker Kevin McCarthy recently said the GOP “won’t touch Medicare or Social Security” in current debt-ceiling negotiations.
There could be a happy meeting ground between gutting Social Security and not doing anything — but it will take compromises from both sides, according to Charles Blahous, a senior research strategist at George Mason University’s Mercatus Center and a former trustee for Social Security and Medicare.
“On Social Security, the only answer is bipartisan compromise,” Blahous told CBS Austin. “The numbers don’t permit anything else. The problem is so big now, you can’t get there just by slowing the growth of benefits. You can’t get there just by raising taxes. You can’t get there just by raising the eligibility age. You have to do all three.”
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