Social Security Expert Says There’s ‘No Cause for Alarm,’ Predicted Cuts to Benefits Are Right on Schedule
Last week’s news that the Social Security trust fund will run out of money sooner than previously thought might have caused alarm in some quarters, but others downplayed its impact. Among the latter is Kathleen Romig, director of Social Security and Disability Policy at the Center on Budget and Policy Priorities.
In a March 31 tweet, Romig wrote that “a year’s worth of fluctuation in the reserve depletion date is not a cause for alarm — or celebration … For over a decade, every Trustees’ Report has estimated a reserve depletion date between 2033 and 2035.”
Her tweet referred to a chart showing that since 2012, the depletion date for Social Security’s Old Age and Survivors Insurance (OASI) Trust Fund has consistently ranged between 2033 and 2035. That date has moved up rapidly since 2004, when the trust fund was expected to last until 2042.
In its latest Trustees’ report, released on March 31, the Social Security Administration said that under current assumptions, the OASI fund will become depleted in 2033 — one year earlier than projected in the 2022 report.
When the fund runs dry, Social Security benefits would have to be funded solely through payroll taxes, which cover only about 77% of current benefits. To deal with the shortfall, lawmakers will either have to save money through reduced benefits or raise money through higher payroll taxes.
Despite ongoing concerns about Social Security’s fiscal health, Romig and others warn against reading too much into the fact that the depletion date moved up a year.
As the Los Angeles Times noted, most of the change this year happened not because Social Security’s “finances continue to deteriorate” — as the Committee for a Responsible Federal Budget wrote in a March 31 analysis — but because of other, more technical factors. One of those factors is a change in the program’s projection methodology and an update to its valuation period.
Changes also result from the system’s estimates of inflation, productivity, birth rates and other demographic factors. The trustees project higher inflation, lower production output and lower birth rates over the next decade and the ensuing 65 years.
“The overwrought concerns about Social Security’s fiscal condition never ceases to produce rococo proposals for reform,” business columnist Michael Hiltzik wrote in the LA Times. “A persistent idea is to raise the retirement age.”
As previously reported by GOBankingRates, a proposal released last summer by the Republican Study Committee would realign the 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 or 67. The theory is that by raising the retirement age, more seniors would opt to work longer and delay claiming Social Security benefits, thus saving money over the short term.
“These proposals, however, never take into account the differences in life expectancies arising from ethnic, income and educational factors,” Hiltzik wrote. “Put simply, they would disproportionately penalize Black, lower-income and less-educated workers, as well as those whose working lives were spent in physically demanding jobs. These proposals boil down to rich desk-jockeys telling others to just suck it up.”
Even so, there is no denying that a major Social Security funding source is running out of money — and something must be done to bolster the program to avoid cutting benefits.
The only other option is to raise more money through payroll taxes. Currently, employees and employers each pay 6.2% of wages on Social Security, with self-employed individuals paying the full 12.4%. Raising those rates is one way to increase revenues.
Raising the income threshold on wages subject to Social Security would have a similar impact. In 2023, any yearly earnings above $160,200 are not subject to Social Security taxes. Raising that threshold to $250,000 or higher would bring in more money — something lawmakers like U.S. Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) support, along with advocacy groups such as the National Committee to Preserve Social Security and Medicare (NCPSSM).
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The LA Times, citing dating from the American Academy of Actuaries, said one way to eliminate the projected Social Security shortfall is to remove the wage cap and also add a 6.2% tax on investment income.
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