Looking into the details of the recent Social Security Trustees report shows that waiting to reform the program onto a sustainable path will make the job more difficult than if we take action now.
An analysis by one of Social Security’s two public trustees, Charles Blahous, puts numbers to the choices policymakers face.
If they were to act now, they would need to increase the payroll tax rate to 15.06 percent, up from the 12.4 percent workers face today, to avoid benefit cuts. On the other hand, to avoid tax increases, benefits for current and future beneficiaries would have to be cut by 16.5 percent.
If policymakers wanted to avoid cutting current recipients’ checks and only reduce benefits for future beneficiaries, the cut would be 19.8 percent of promised benefits.
The choices are much worse if we wait until 2033 — the year in which Social Security is projected to become insolvent. Then payroll taxes would have to be increased by roughly a third, to 16.5 percent. If efforts were only focused on the benefit side, current and future beneficiaries would face cuts of 23 percent.
Combining tax increases with benefit cuts would help avoid such large changes in taxes or spending. There is a precedent for such a reform effort. In 1983, Social Security faced a funding crisis that was solved on a bipartisan basis with a combination of benefit cuts and tax increases. Blahous cautions, however, that the current shortfall in Social Security is nearly twice as large as during the 1983 crisis.