WASHINGTON—The Social Security Trustee’s report released yesterday shows that Social Security’s projected insolvency in 2034, a mere 12 years from now, means that absent congressional action, most Americans will be subject to benefit cuts of at least 23% across the board. This would reduce the average Social Security benefit from $1,590 per month to $1,220. Social Security’s rapidly approaching insolvency also means that most people who are already retired and collecting benefits will be subject to those cuts, and anyone 55 years or younger today will never receive a full benefit.
Heritage’s Rachel Greszler, senior research fellow for budgets and entitlements, released the following statement Friday in response to the report:
“Hundreds of millions of Americans have paid Social Security taxes with the belief that the program will provide for them in retirement. However, the trustee’s report clearly shows that unless Washington takes action soon, millions of Americans will find that belief devastatingly misplaced.
“Social Security was established to prevent older Americans from living in poverty when they are too old to work, but the program’s unchecked expansions have made Social Security anything but secure for current and future workers. Policymakers urgently need to reform Social Security so that the program can meet its original goal of preventing poverty in old age, while correcting some of the detriments of the current system that make Social Security an increasingly raw deal for workers.
“A bigger Social Security program is not better. Instead, a more targeted program could solve Social Security’s shortfalls and increase incomes and opportunities for all. Gradually shifting to a flat, universal benefit, slowly increasing the retirement age and indexing it to life expectancy, using a more accurate inflation measure, and eliminating work disincentives would protect and improve Social Security. These simple fixes would reduce the Social Security tax rate, give Americans more control over their own retirement incomes, increase fairness across the board, increase incomes, and strengthen the economy.
“The sooner that policymakers act to prevent Social Security’s insolvency, to improve the program’s efficacy, and to give workers actual ownership of their retirement savings, the lower the costs and consequences will be for everyone, and the more likely it will be that every American can have more autonomy and financial security in retirement.”
BACKGROUND: According to The Heritage Foundation’s Social Security model, these changes would not only solve Social Security’s shortfalls; they would also allow a roughly 25% reduction in Social Security’s tax rate, allowing all Americans to keep more of their earnings to save and spend as they see fit for them and their families.
Moreover, incorporating an ownership option in Social Security would allow more Americans to benefit from positive investment returns and personal wealth ownership. It would also alleviate imbalances caused by current policy, such as lower-income workers and black Americans being more likely to pay into the program for decades and receive little or nothing in return.
These changes would also lead to a stronger economy and higher incomes. The Penn Wharton Budget model projected that a smaller and better-targeted Social Security program would result in an economy that is 7.3 percent, or $1.6 trillion, larger than a bigger Social Security program. That translates into $10,740 more in annual income per household across the U.S.
Maintaining scheduled benefits, however, would require an immediate 28% tax increase, from 12.4% for the combined Social Security and Disability Insurance programs to 15.8%. This would require a $2,300 per year tax hike—and a $10,800 annual Social Security tax bill—for the median household making $68,000 in earnings. Alternatively, all benefits could be immediately reduced by 21%.
The costs of congressional inaction so far have been exponential, more than doubling over the past 10 years. At $20.4 trillion and rising, Social Security’s unfunded obligations are $157,000 per household.