Both a benefit reduction and a payroll tax increase could be part of a larger policy solution as proposed by the trustees. Image: J.J. Gouin/Shutterstock.com
Increases in income and/or decreases in the rate of growth of benefits would help shore up Social Security’s finances but waiting until the trust fund officially hits its point of exhaustion—projected to occur in about 10 years—would mean any such changes would have to be more severe than if done today, says a report for Congress.
The report from the Congressional Research Service is the latest from many sources on options for addressing the exhaustion of the fund built up over decades, after which the program will have only enough ongoing income to pay about three-fourths of currently promised benefits. Barring a change in law, the program could not be funded from general tax revenues and borrowing.
Other changes also would require changes in law, the report notes. For example, the gap could be filled for the 75-year period used for long-term Social Security planning purposes by enacting an immediate 3.44 percentage point increase in payroll taxes. That total is split evenly between employers and employees, meaning raising the share for each from 6.2 to 7.92 percent. The same result could be achieved by an immediate 21.3 percent reduction in promised benefits, it says.
However, delaying until 2034 would require a payroll tax increase of 4.15 percentage points—making the employee and employer share 8.275 percent each—and the benefit reduction would have to be 25 percent, it said.
Those figures are based on data from the Social Security board of trustees and show the potential impact from making changes across the board with no other changes in policy. Other reports have raised options such as increasing taxes only on upper-income earners and/or reducing the value of inflation adjustments.
It added: “Both a benefit reduction and a payroll tax increase could be part of a larger policy solution as proposed by the trustees. In addition, there is a wide range of revenue-increasing measures (e.g., raising or eliminating the cap on earnings subject to the payroll tax) and cost-reducing measures (e.g., lowering COLAs or increasing the full retirement age) that lawmakers can consider.”
Another option, it said, would be to address only a portion of the shortfall, for example by increasing payroll taxes by 2 percentage points or reducing COLAs by 1 percentage point. That would extend the program’s ability to pay promised benefits past the trust fund exhaustion point, although not for the full 75 year period.
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