Social Security at 90 Policy Options for Strengthening the Program’s Finances and Avoiding Automatic Benefit Cuts

Executive Summary

As it marks its 90th anniversary, Social Security is the cornerstone of economic security in the United States. However, it faces a long-term financing gap. Lawmakers will need to address Social Security solvency within less than a decade, as the program’s trust funds are projected to become depleted—and unable to pay full benefits—in 2034. Doing nothing would lead to large benefit cuts and widespread hardship.

Much of the program’s long-term shortfall stems from the legacy costs of paying benefits to early generations of recipients after the program’s inception. More recently, the further deterioration in Social Security’s financial outlook since 1983 is largely due to the rise in earnings inequality that has eroded the program’s tax base, along with a failure to adjust tax rates in recent decades.

While the 1983 amendments are often cited as a model for the present situation—in process if not also in substance—the reality is more complicated. In reality, the commission process was not the success it is often made out to be, and the long-term solution Congress enacted was not a balanced mix of revenues and benefit reductions; rather, it leaned more heavily on benefit reductions. Moreover, the challenges Social Security faces today differ notably from those of 1983, and many of the one-time revenue infusions that were used then are no longer available today. Today’s funding shortfall is also projected to be larger and longer lasting, presenting policymakers and the public with difficult choices.

Looking to the future, revenue increases for Social Security have strong public support and would allow lawmakers to address solvency without worsening seniors’ economic security. In addition, unless lawmakers adopt a package that would rapidly bring significant revenues into the system in the coming decade, they may need to consider some form of general revenue financing on at least a temporary basis, as a stopgap measure to avoid substantial benefit reductions in 2034. Past examples show that such funding could be structured in a variety of ways, including with temporary or permanent duration, new or existing taxes, and with or without repayment. In particular, general revenue funding could help address some of the legacy costs from the program’s early years.