Four Myths About Social Security
This month marks the 80th birthday of the Social Security program. For decades, the program has been a vital lifeline for retirees, the disabled, and their families and has lifted tens of millions of Americans out of poverty.
The program faces financial problems, though. The Disability Insurance trust fund is expected to deplete its reserves in late 2016, and even if its finances are intermingled with the old age program, the combined Social Security trust funds are projected to go insolvent by 2034. When these trust funds run out of money, benefit payments will need to be cut or delayed to hold spending to incoming revenue.
Making Social Security financially secure will require an informed debate about the choices involved, but myths are often recited to obstruct progress on reform. Here are 4 common myths.
Myth #1: Social Security does not face a large funding shortfall.
Fact: The Social Security trust fund is projected to run out by 2034 and faces a shortfall of 2.7 to 4.4 percent of total wage income over the next 75 years.
Due to population aging, Social Security is projected to have a relatively large shortfall over the long term, which will deplete the trust fund reserves by 2034. Keeping Social Security solvent for 75 years would require the equivalent of a 20 percent (2.6 percentage point) immediate payroll tax increase or 16 percent immediate benefit cut, according to the Social Security trustees. Needed adjustments will grow over time.
While the shortfall can certainly be closed with targeted spending and revenue changes, it should not be downplayed or ignored.
Myth #2: Today's workers will not receive Social Security benefits.
Fact: Even if policymakers do nothing, the program could still pay about three-quarters of benefits.
Simply put, the only way that future beneficiaries would receive zero benefits from Social Security is if the program were eliminated. When the trust fund goes insolvent, as the trustees project will happen in 2034, it would still be able to pay benefits from incoming revenue, which they forecast would equal 79 percent of scheduled benefits in that year, declining to 73 percent over time.
Trust fund insolvency does not mean that benefits would disappear but rather that they would be reduced from their scheduled level by about one-fifth. That would clearly be a dramatic cut in benefits, particularly since it would happen quickly, but it would not be the same thing as benefits going away entirely.
Myth #3: Social Security would be fine if we hadn't "raided the trust fund."
Fact: The program's financial shortfall stems from a growing mismatch between benefits paid and incoming revenue, not the fact that the funds were borrowed.
As a result of surpluses accumulated during the 1990s and 2000s, the Social Security trust fund currently holds $2.8 trillion of assets, which are invested in special U.S. Treasury bonds. Many argue that the surpluses were used to mask the size of deficits outside the program, allowing lawmakers to enact more tax cuts and spending increases than they otherwise would. In that sense, it could be argued that lawmakers "raided the trust fund," but in an accounting sense, no actual money has been taken out of the Social Security trust fund. The $2.8 trillion of assets will be available to cover program deficits until that money runs out.
Solvency projections take into account the trust fund assets but show that they are dwarfed by the shortfall over the next 75 years. The Social Security trustees project that the program will spend $13.5 trillion more (on a "present value basis," which accounts for interest and inflation) than it raises over the next 75 years, relying on the trust fund to finance $2.8 trillion of it. Lawmakers need to reduce the program's deficits to ensure solvency.
Myth #4: Fixing Social Security is too hard.
Fact: Social Security reform options are well-known, and incremental adjustments - enacted soon - can secure the program for future generations.
While Social Security reform may be politically difficult to accomplish politically, the options, from a policy sense, are well-known and are sufficient to keep the program solvent without fundamentally changing its structure.
There are countless options available to change various parameters of the program, and the Social Security Chief Actuary publishes annually a long list of 121 options for doing so. The chief actuary also has evaluated Social Security reform proposals going back two decades. Ordinary citizens can weigh the various factors and come up with their own Social Security plan by accessing "The Reformer," an online tool from The Committee for a Responsible Federal Budget (CRFB).
There are plenty of well-known and quantifiable options to ensure that Social Security remains financially sound for the next 80 years and beyond.
Adam Rosenberg is a policy analyst at the Committee for a Responsible Federal Budget, a nonpartisan organization committed to educating the public about issues that have significant fiscal-policy impact. These are just four of eight myths that CRFB tackled in a recent paper. To read more about all eight, click here.