What You Need to Know About Social Security’s Solvency

June 20, 2013 at 4:19 pm

Our annual analysis of the Social Security trustees’ report, which we published earlier this week, follows up on our earlier statement and distills what policymakers and citizens most need to know about the 200-plus page report.  The bottom line:  Social Security does not face an immediate crisis, but it does face a funding shortfall two decades from now that the President and Congress should address reasonably soon so the program can fully meet its promises.

Social Security benefits — if paid in full — will rise gradually over the next few decades, from about 5 percent of Gross Domestic Product (GDP) today to slightly over 6 percent in the 2030s and beyond.  That roughly mirrors the aging of the U.S. population (see figure).

The program’s revenues don’t quite keep up; the trustees state that the program can pay full benefits for the next two decades but faces a shortfall thereafter.  Specifically, the trustees project that the combined Old-Age and Survivors Insurance and Disability Insurance trust funds will be exhausted in 2033 — the same year the trustees projected in last year’s report.

Even after 2033 — if policymakers did nothing — the program could still pay three-quarters of scheduled benefits from its incoming tax revenues.  The program isn’t bankrupt, and alarmists who say it won’t be around when today’s young workers retire misrepresent the projections.

The program’s 75-year shortfall is 2.72 of taxable payroll or 1 percent of GDP.  Critics who like to cite scary dollar figures — like an “unfunded liability” of $10 trillion over 75 years — almost never give a hint of the economy’s size, which is crucial to the program’s affordability.  Over the next 75 years, for example, GDP will be over $1,000 trillion, and the shortfall is just 1 percent of that.

In short, the program faces a funding gap that’s well-documented but manageable.  Lawmakers should address it reasonably soon so the program can fully meet its promises and allow people to plan their work, savings, and retirement with greater certainty.

Read our analysis here, and check back tomorrow for what we think policymakers should do to address Social Security solvency.

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More About Kathy Ruffing

Kathy Ruffing

Kathy Ruffing is a Senior Fellow at the Center on Budget and Policy Priorities, specializing in federal budget issues.

Full bio | Blog Archive | Research archive at CBPP.org

1 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    Taxes do not fund Federal Spending. Taxes manage aggregate demand…inflation.

    It is a logical inconsistency to be the sole issuer of all the currency and then claim the need for revenue to spend. (Banks don’t issue currency. Banks create credit/debt they do not issue the dollar. Only the Treasury can do that through the Federal Reserve.)

    America is a fiat currency issuer, no gold involved, no balanced budget needed, only self imposed constraints such as the much violated debt ceiling). It issues the dollar. It accounts for all spending through computerized spreadsheets marking checking accounts up or down. The government doesn’t have to get dollars to spend.

    The Pay Roll tax was justified as a way to “pay for Social Safety Net Programs.” In reality Arthur Burns and then Greenspan needed to justify tax increases on the Middle Class and called that increase a means through which to fund SS. It was a lie then and it is a lie now. The rich got a tax cut and the Middle Class and Poor got an income cut.

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