Social Security trust funds like the old-age and survivor insurance, which pays retirement benefits, could be depleted in February 2033, according to the latest Penn Wharton Budget Model (PWBM) at the University of Pennsylvania.
If combined with the disability insurance trust fund, the projected depletion date could be around February 2035, according to the PWBM. Social Security uses revenue from payroll taxes to pay benefits to over 70 million people every month. When benefits exceed payroll tax income, the programme then depends on the trust funds to offset shortfall.
Even if the trust funds run out without the intervention of Congress, Social Security won't be totally bankrupt as payroll taxes will continue to flow in, but benefit amounts could decline considerably. PWBM estimates that benefits could decline by 14% when the trust funds are depleted. The institute further estimates that scheduled benefits could fall to 60% by 2100.
'We're still talking about a pretty sizable increase that would be necessary in terms of taxes or benefit cuts going forward, and if we don't take action soon, that number just simply goes up,' said PWBM's faculty director Kent Smetters.
'Don't Cut Benefits,' Says Former Social Security Commissioner
Former Social Security commissioner Martin O'Malley told a media outlet in a recent interview that mandating higher-income Americans to pay more Social Security payroll taxes is the fix to the looming trust fund deficit risks.
He believes the government should raise the limit on earnings subject to Social Security payroll taxes, instead of trimming benefits. The current payroll tax cap exempts annual earnings above $184,500 from Social Security taxes.
'It's only 6% of us that experience any benefit from the cap and an even smaller percentage — three or four — who benefit from scrapping the cap on income above $250,000,' he said. 'Most Americans think it is unfair that wealthy people don't pay the same tax rate as a custodian in a school or a teacher.'
Social Security Risks Trigger Debate on Capitol Hill
Social Security insolvency risks reignited debate on Capitol Hill over how to effectively manage the programme's finances.
Proposals from lawmakers include raising the payroll tax cap, increasing the retirement age, and even creating personal accounts to invest in the stock market.
Speaker Mike Johnson recently urged Republicans to devise ways to overcome the rising costs of Social Security, Medicare, and Medicaid, arguing that the programmes must be 'adjusted and fixed' to ensure their sustainability.
'The reason we're in trouble is because over 74% of federal spending is on autopilot — mandatory spending, that is your entitlement programs like Medicare, Medicaid and things like Social Security — they have to be adjusted and fixed,' Johnson had stated in a recent interview.
'We have a plan to do that next year, and it's critical, because we're at $40 trillion-plus in debt. At some point you get into a hole so deep you can't climb out of it, so desperate times call for desperate measures,' Johnson added.
However, O'Malley disagreed with Johnson portraying Social Security as a programme that contributes minimally to the federal deficit, since funding mostly comes from payroll taxes.
