Two recent reports from the Congressional Research Service illustrate just how much changes with the passage of time in a program like Social Security while political leaders look away. Image: Jonathan Weiss/Shutterstock.com
By: FEDweek StaffFor many years, Social Security has been the third rail to politicians—extraordinarily dangerous to even approach, other than to sweeten benefits.
No one has wanted to take the lead in addressing the pending funding shortfall that has been obvious for decades and is now only about 10 years away. At that time, something will have to give. Without slowing down the rate of growth, increasing the income flowing into the program or both, around 2034 the program will be able to pay only 80 percent of currently promised benefits.
Two recent reports from the Congressional Research Service illustrate just how much changes with the passage of time in a program like Social Security while political leaders look away.
One involves taxation of Social Security, which depends on the amount of a taxpayer’s Social Security benefits, other income, tax filing status, and other factors. Up to 85 percent of benefits potentially are taxable if the recipient’s income passes certain individual or joint levels. Revenue to the government from those taxes goes back into the Social Security trust fund, not into general Treasury accounts.
While those policies have been in effect since 1983, “the proportion of beneficiaries who owe income tax on their Social Security benefits is rising,” the report said. That is “because Social Security benefits are indexed to wage growth and adjusted for inflation, whereas the provisional income thresholds used to determine the taxable amount of Social Security benefits are fixed by statute and not indexed for inflation or wage growth.” It said that while in 1994,
For each dollar of Social Security benefits paid in 1994, approximately 2.2 cents were paid as federal income tax, that amount had tripled to 6.6 percent by 2022. The taxable amount of benefits as a percentage of all Social Security benefit payments grew from 12.2 to 38.2 percent in that time. In dollar terms, it says, that now amounts to $50.7 billion, or 3.8 percent of the trust funds’ total annual income.
The report notes that several bills are pending in Congress to either eliminate that tax or to soften it for example by raising the income thresholds at which tax liability kicks in. But the increasing reliance on those taxes as a source of income to the program throws cold water on that idea. The other report relates to the death benefit payment, which has been unchanged for even longer. After several iterations in the program’s early years, the amount—technically tied to an earnings formula—was capped at $255 in 1954, where it has remained since. The payment was being described as “largely an anachronism” as long ago as a Carter administration budget document, the CRS said, and various ideas have been raised in the years since, including a bill introduced in the current Congress to raise the amount to $2,900. But here’s the cold water again: The SSA actuaries estimate that would cost $40 billion over 10 years.
Said the CRS, “The lump-sum death benefit’s real value has declined significantly since it was introduced. For example, in 1954, the average lump-sum nominal death benefit per worker was $208, which would have been equivalent to more than $2,299 in 2023 dollars. In recent decades, inflation has caused the real value of the $255 payment to continue to decline.” There never has been a shortage of ideas for shoring up Social Security, such as phasing up the full benefits age over a long period of years and increasing taxes on workers and employers moderately. Both were done during the reform of the 1980s. If such incremental changes had been made to Social Security over the four decades since, its pending problems could have been avoided with only moderate impacts.
The longer the wait, the more painful the solution will be. And there must be a solution; cutting benefits by 20 percent is unthinkable. Many people receiving Social Security, or who have it in sight, have been perfectly ok with the hands-off approach. But leaving something alone doesn’t mean it will never change.
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See also,
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