Social Security Trustees Release Latest Projections
Today, the Social Security and Medicare Trustees released their annual reports with projections of the finances of both programs. The bottom lines of these reports differ slightly from last year, but the message remains the same: our entitlement programs need serious reforms to ensure their sustainability for future generations. CRFB has released a full analysis of the Social Security Trustees report, breaking down the changes in the projections.
The program's 75-year actuarial shortfall -- the 75-year imbalance between spending and revenue -- increased modestly from last year to 2.72 percent of payroll (0.98 percent of GDP) from 2.67 percent of payroll (0.96 percent of GDP) in last year's report. However, the dates for trust fund insolvency for OASI and DI have remained the same at 2035 and 2016, respectively, and the combined OASDI trust funds are still projected to be exhausted by 2033.
If no action is taken, under current law, all disability beneficiaries will face an immediate 20 percent across-the-board benefit cut less than three years from now. If interfund borrowing is allowed, all Social Security beneficiaries will face an immediate across-the-board 23 percent cut two decades from now. Preventing that benefit cut would require a large transfer from general revenues – or require an abrupt one third increase in payroll taxes from 12.4 percent to about 16.5 percent.
For the most part, changes in underlying assumptions had offsetting effects resulting in no significant change in the projections in this year’s report. These included the costs of the fiscal cliff legislation (which reduced revenue from taxation of benefits) and greater than expected increases in longevity, offset by a number of methodological improvements. In the end, the higher actuarial shortfall (2.72 instead of 2.67 percent of payroll) is entirely due to the addition of 2087 into the 75-year window.
|Changes in 2013 Social Security Trustees Projections (Percent of Payroll)|
|2012 Actuarial Imbalance||-2.67%|
|Legislative and Regulation Changes||-0.15%|
|Long-Term Economic Assumptions||-0.03%|
|Demographic and Disability Assumptions||-0.16%|
|Shifting 75-Year Window||-0.06%|
|2013 Actuarial Imbalance||-2.72%|
Note: Numbers may not add due to rounding.
Once again, the Trustees’ report demonstrates the urgency for reform. It also makes clearer the choice policymakers have to either work together on smart, targeted long-term reforms, or continue on the current path and allow drastic benefit cuts for future beneficiaries. The Trustees recommend:
"lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 58 million beneficiaries and 163 million covered workers and their families in 2013. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations."
To help highlight the many reforms available to lawmakers, CRFB will release a new interactive tool called the "Reformer" at an event on Tuesday, featuring Social Security Trustee Chuck Blahous and other Social Security experts.
Read CRFB's full analysis of the 2013 Social Security Trustees Report here.