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In a recent report, the Congressional Budget Office (CBO) highlighted the financial challenges facing Social Security. As the largest program in the federal budget, Social Security is a critical part of our nation’s fiscal picture and vital to millions of elderly recipients. However, without reform, the Social Security Trust Funds will soon be depleted and unable to pay full benefits. According to CBO’s projections:
The two trust funds combined would be exhausted in 2033, at which point program benefits would be reduced by 25 percent. By comparison, the Social Security Trustees had a slightly more optimistic projection in their report released earlier this year, with the program’s trust funds facing depletion in 2034 and a 20 percent cut in benefits at that point.
The potential exhaustion of the program’s trust funds is due to the imbalance between the revenues dedicated to Social Security and the program’s scheduled benefit payments. If Social Security paid benefits as scheduled, spending on the program would rise from 5.2 percent of gross domestic product (GDP) in 2023 to 7.0 percent in 2097. Revenues, meanwhile, would remain around 4.6 percent of GDP over that period.
One of the key drivers of that mismatch between revenues and expenditures is the nation’s aging population and the corresponding decline in the ratio of workers to Social Security beneficiaries. Through 2030, about 10,000 baby boomers will turn 65 every day — meaning that the number of Social Security beneficiaries will continue to climb. In 2010, one year before the first baby boomers turned 65, there were 53 million Social Security beneficiaries; by 2031, the last year baby boomers will reach the full retirement age, there will be over 77 million beneficiaries, a 45 percent increase. Meanwhile, the number of covered workers paying into the program will only rise by 19 percent over that same period. As a result, the ratio of workers to Social Security beneficiaries will drop from 2.9 in 2010 to 2.4 in 2031.
While Social Security faces significant financial challenges, there are many options for reform available to place the program on sound financial footing. For example, policymakers could enact solutions to raise the retirement age, decrease the program’s benefits, increase the revenues dedicated to the program, or some combination of those actions. Several organizations have highlighted the potential cost savings from such reforms. CBO released a report detailing the cost savings associated with specific reforms such as reducing benefits for high earners, setting benefits to a flat amount, and increasing the income cap on payroll taxes. The Committee for a Responsible Federal Budget covered options such as increasing the payroll tax rate by one percentage point, changing the calculation of benefits, and raising the retirement age to 69 and indexing it to life expectancy. Regardless of the policies chosen, lawmakers need to enact reform soon to put Social Security on a sustainable fiscal path.
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