The Board of Trustees of the Social Security Act have reassessed their projections of the Old Age, Survivors, and Disability Insurance (OASDI) program. In a continued trend, they revised the total fertility rate (TFR) from 2.0 to 1.9 children per women. The trend of the next generation having fewer children than the previous generation has continued. That, along with the fact that fewer people are paying into Social Security now than in the past, has drawn long-term concern over the viability of the program. However, there is good news; growth in US gross domestic product (GDP) exceeded the prior year’s reports projection. There was also a lower disability incidence rate, which raised the projected employment rate of working-age populations. The net result of the changes in the 2024 report are that the increase in economic growth projections offset the effects of the lower infertility rate.
In 2023, the OASDI program covered 53 million retired and dependents of retirees, 6 million survivors of deceased workers, and 9 million disabled workers and dependents: or roughly 20% of the US population. An estimated 183 million people had their earnings covered by Social Security taxes. Total revenue from the taxes equaled $1.351 billion, made up of $1.284 billion in tax revenue and $67 billion in interest. Total assets decreased from $2.830 billion to $2.788 billion.
Over the next 10 years, the ratio of reserves to cost of the program is expected to go from 188% in 2024 to 88% by the end of 2033; that is if no other changes are made to modify the program. It is estimated that the Social Security reserves will be empty by 2033, making the program completely dependent on annual revenue. Consequently, pension programs can run in these deficits for a while. For example, the CalPERS funding ratio has been around 72%, and California retirees have continued to receive their benefits based on reserves, annual contributions of working taxpayers, and investment returns. The difference with Social Security is that it is much more of a political problem than CalPERS, and Social Security has projected the reserve to go to zero. It will take more compromises to address the funding gaps. California has more control over its contracts with its employers to force current employees and employers to contribute more whereas Social Security taxes are set by Congress.
What are the main problems and possible solutions? OASDI benefit payments have increased more rapidly than taxable payrolls since 2008, and under current tax law, that trend is expected to continue until 2040. Congress could look at finding ways to tax income that isn’t subject to Social Security and/or Medicare taxes by taxing investment income for example. Another option is to increase the current payroll tax rate to increase revenue. Or, Congress could seek to reduce the outflow by means-testing benefits.
Will Congress modify the tax code to tax investment and real estate income that doesn’t currently pay into Social Security? Will employee or employer rates change? The answer will probably be a mixed bag of adjustments. Congress simply doesn’t like irritating such a large voting block of retirees who need these benefits now and in the future. If nothing happens, hypothetically in 2035 we would be unable to pay scheduled benefits in full, continued income in 2035 would be enough to pay 83% of scheduled benefits.
From the Trustee Board; “Lawmakers have a broad continuum of policy options that would close or reduce Social Security's long-term financing shortfall. Estimates for many such policy options are available at ssa.gov/OACT/solvency/provisions/. 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.”