While Social Security is projected to run surpluses through 2020, the 2013 Trustees Report estimates that the program will be able to pay only 77 percent of benefits by 2033. To fully finance benefits over 75 years, policymakers will need to choose between increasing revenues or reducing spending, or a combination of both steps.
Social Security has a long-run actuarial deficit equal to 2.72 percent of taxable payroll, according to the 2013 Trustees Report. This means that the deficit could be closed immediately if tax rates were raised from the 6.2 percent paid by both workers and employer (a total of 12.4 percent) to 7.7 percent each (or 15.4 percent in total). In other words, the deficit would be eliminated if workers and employers each paid 1.5 percent of wages more in Social Security taxes.
Options for increasing the system's revenues include:
- Raising the taxable earnings cap, which is $113,700 in 2013;
- Raising the Social Security tax rate in the future;
- Earmarking other taxes for Social Security in the future;
- Investing part of Social Security funds in equities; and
- Extending Social Security coverage to the 25 percent of state and local government employees not now covered.
Options for lowering benefits include:
- Further raising the eligibility age for full retirement benefits;
- Raising the eligibility age for early retirement benefits;
- Lowering the cost-of-living adjustment;
- Indexing benefits for new beneficiaries to keep pace only with price increases, instead of wage increases; and
- Gradually scaling back benefits in a variety of other ways.
In addition, a number of other policy options would make benefits more adequate for specific vulnerable populations. Those options include:
- Updating the special minimum benefit for low-serving, low-paid workers;
- Reinstating student benefits up to age 22 for children of disabled or deceased workers;
- Increasing benefits for the "oldest old" (ages 85 and older); and
- Allowing childcare years to count towards Social Security benefits.
For a discussion of various solvency and adequacy options, see:
- Fixing Social Security: Adequate Finances, Adequate Benefits
- Social Security Benefits, Finances, and Policy Options: A Primer
- Social Security Finances: Findings of the 2013 Trustees Report, Social Security Brief No. 42
- How Would Seniors Fare – by Age, Gender, Race and Ethnicity, and Income – Under the Bowles-Simpson Social Security Proposals by 2070?, Social Security Brief No. 38
- Social Security Beneficiaries Face 19% Cut; New Revenue Can Restore Balance, Social Security Brief No. 37
- How Would Shifting to a Chained CPI Affect the Federal Budget?, Social Security Fact Sheet No. 3
- Should Social Security’s Cost-of-Living Adjustment Be Changed?, Social Security Fact Sheet No. 2
- Strengthening Social Security for the Long Run, Social Security Brief No. 35
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* The views of NASI members are their own and not an official position of the National Academy of Social Insurance or its funders.