Retirement & Financial Planning Report

A report for Congress shows the effect of delaying addressing Social Security’s long-term funding issue, which has been known for many years but which political leaders have not addressed in that time.

The report from the Congressional Research Service notes that due to demographic factors including the retirement of the Baby Boom generation, it has been clear for years that the program’s trust fund surplus–built up since the last major reform of the program in the early 1980s—will eventually be drawn down. The most recent projections now show that will occur in 2034.

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“Following depletion of trust fund reserves, ongoing tax revenues are projected to cover 78% of scheduled benefits,” the report says.

How to make up the difference has been the subject of numerous reports and recommendations over the years, focusing on increasing income to the program, slowing the growth of expenses, or both. The new CRS report centers on one possibility in the former category, ending the limit on how much of income is subject to the 6.2 percent Social Security payroll tax paid by both employees and employers.

That limit has increased annually since the last reform of the program and is set to rise to $147,000 for 2022; roughly 94 percent of earners have incomes below the limit but it results in only about 83 percent of potentially covered earnings being subject to the payroll tax.

The report said that up to 2020, Social Security trustees estimated that eliminating that limit and making all pertinent earnings subject to the tax would itself have been enough to completely or nearly close the funding gap for at least 75 years. However, that had slipped to 72 percent in 2012, 67 percent in 2017, and 55 percent in 2020.

Taking that action even now still would help the fund, it noted, projecting that it would put the fund back in a surplus position until 2057.

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