The Congressional Budget Office has listed three dozen possible ways to shore up the Social Security program’s finances, showing that some of them would have a much larger impact than others.
In response to queries from Congress following a recent hearing, the CBO summarized its past work on the financing issue, which has been on the government’s horizon for many years as the large baby boom population ages and more of them start drawing benefits. Additionally, “their longer life spans will result in those beneficiaries’ receiving payments for more years than was the case in the past, thus increasing the total amount of benefits the average retiree receives over a lifetime. Those factors will combine to cause the growth in benefits as scheduled under current law to outpace the growth in the economy overall,” CBO said.
The result will be that the program’s outlays in terms of gross domestic product will rise from 4.9 to 6.3 percent of GDP over 30 years while the revenues coming in will fall from 4.6 to 4.5 percent—leaving a large gap to be filled.
CBO said that possible approaches fall into five general categories, involving the taxation of benefits; the benefit formula; the full retirement age; COLAs; and benefits for specific groups. Two of the options with the greatest potential impact, it said, would be to gradually increase the payroll tax by 3 percentage points, and to gradually reduce benefits for newly eligible beneficiaries by 15 percent over a 10-year period. Each of those would fill about a third of the funding gap, it said.
Other options with the greatest impact, it said, include taxing earnings above the current taxable maximum with no increase in benefits; raising the age at which full benefits can be drawn to 68 or 70 from the current 66; base COLAs on a consumer price index that takes into account changes in spending patterns as prices of goods and services vary (the “chained CPI”); and revising the benefits calculation formula to make it less generous. In contrast, reductions to spousal and survivor benefits would have a much smaller impact.
“The effects of many of the options could be changed if they were implemented at a larger or smaller scale or phased in more slowly or quickly,” it added.