WASHINGTON—The 2021 Social Security Trustees report released Tuesday proves without a doubt that Social Security needs to be reformed, as nearly every American, especially those approaching retirement or paying into the system now, will be affected by the program’s looming insolvency. Rachel Greszler, research fellow in Heritage’s Grover M. Hermann Center for the Federal Budget, released the following statement on the way forward:
“The federal government should keep its word to American workers, including when it comes to Social Security. As the trustees’ report makes clear, Social Security is in trouble, and requires urgent action to fix. Social Security’s shortfalls are rapidly increasing, having grown $3 trillion in 2020 alone, and tripling over the past decade, from $6.5 trillion in 2010 to $19.8 trillion in 2020. At $19.8 trillion, Social Security’s 75-year unfunded obligation amounts to $154,000 for every household in the U.S. That’s more than a typical household spends over five years on housing, groceries, gas, and clothing.
“2020 marked the 11th straight year that Social Security has been in the red, having paid out $95 billion more in benefits than it collected in taxes in 2020. The only reason the program is still considered solvent is that it’s cashing in on previous IOUs. Cashing in on those IOUs requires the Treasury to issue more publicly held debt.
“The fact that every dollar American workers pay in Social Security taxes goes immediately out the door to fund current retirees’ benefits makes the program an increasingly raw deal for current and future workers. Not only does Social Security strip workers of the opportunity to earn a positive rate of return on their own money, but workers have no assurance that Social Security will provide anything for them in retirement, despite decades of paying into the system.
“The trustees estimated that the net effects of COVID-19 will lead Social Security’s combined disability insurance and old-age insurance trust funds to run out of money one year earlier than previously estimated—in 2034 instead of 2035—but Social Security’s shortfalls existed long before the pandemic.
“The Heritage Foundation has proposed a more effective, better-targeted Social Security system, including a gradual shift to a universal benefit, increasing and indexing the retirement age to life expectancy, and using a more accurate inflation index. According to The Heritage Foundation’s Social Security model, these changes would not only solve Social Security’s shortfalls, but they would also allow for a roughly 25% reduction in Social Security’s tax rate, letting all Americans to keep more of their earnings to save and spend as they see best for them and their families.”
Greszler maintains absent legislation to address Social Security’s shortfalls, old-age retirement benefits will be cut by 24% beginning in 2033. That means that anyone currently born after 1971 won’t receive a single full Social Security benefit. And the roughly 60 million retirees receiving Social Security benefits in 2033 will also be subject to 24% benefit cuts. If policymakers decide to raise taxes, from 12.4% to 16.6%, that will affect all current and future workers, and it will also result in a smaller economy for everyone.
The CBO, which has different economic assumptions, projects that Social Security will run out of funds to pay scheduled benefits even earlier, beginning in 2032. The CBO also estimates that if policymakers wanted to prevent benefit cuts those already retired in 2032, 45% benefit cuts would be necessary to maintain the program’s long-term solvency.