A report from the program’s trustees projects the trust fund will be exhausted in 2033, calling it an action-forcing event. Image: zimmytws/Shutterstock.com
By: FEDweek StaffA study examining options for shoring up the Social Security program’s finances says that an argument can be made for imposing that cost on society at large rather than just on current workers and beneficiaries, but that even that approach “is not a free lunch.”
The report from the Center for Retirement Research calls the latest report from the program’s trustees, projecting that the trust fund will be exhausted in 2033, an “action-forcing event” because it means that only 10 years remain to address the arrival of a point that has long been anticipated. After that, it projects, income from payroll taxes paid by employers and workers under Social Security will be sufficient to pay only 77 percent of the projected promised benefits—and falling to only 71 percent longer-term.
As have many similar prior reports, the study examined one option for addressing the difference, raising the payroll tax, which it said would have to rise by 1.8 percentage points for both employers and workers. Such steps—along with a variety of possible changes to benefits to slow the growth in outlays—commonly are raised as the only viable options because under current law the difference cannot be made up through general taxing and spending accounts for day to day government operations.
“The impending depletion of trust fund assets is the ideal time to rethink the program’s financing structure and to consider whether a general-revenue component might be appropriate,” it says. “The rationale for general revenue is that Social Security costs are high, not because the program is particularly generous, but because the trust fund is missing. If policymakers choose to maintain Social Security benefits at current-law levels, little rationale exists for placing the entire burden of the missing trust fund on today’s workers through higher payroll taxes; that component could be financed more equitably through the income tax.”
“One could argue that the cost of giving away the trust fund associated with the start-up of the program should be borne by society in general in line with a broad measure of ability to pay. Thus, a strong rationale exists for shifting a portion of Social Security financing to general revenues. This is not a free lunch – income tax rates would have to increase,” it says.
It said that would involve raising the average income tax rate from the current 14.1 percent to 16.4 percent—which would be on the high end of the last 40 years but around the levels of the early 1980s and late 1990s.
It added that while such a change would shift a burden onto the general population, “At the same time, workers would be paying an amount for their benefits equal to what they would have paid had a trust fund accumulated. Thus, the burden would be distributed more broadly, but the sense that workers pay for and are entitled to their benefits would remain.”
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