Social Security

CLICK to see all CRFB blogs, policy papers, pre-releases, and op-eds about Social Security

 

What Is Social Security?

Social Security is the federal government's single largest program. The program is a bedrock to the country's safety net, providing monthly payments to disabled Americans, retirees, spouses of retirees, and in some situations the surviving members of a worker's family when they die. In total, the federal government will spend over $800 billion on Social Security benefits to almost 58 million Americans in 2013. Benefits are tied to how much a person earned over the course of their working years. The program is funded by a 12.4 payroll tax on earnings up to $170,000 this year, half of which is paid by employees and the other half by employers, and certain taxes on monthly benefits.

 

[chart:9471]

Source: CBO. 
Note: Total spending in 2013 projected to reach $3.455 trillion.

 Learn more:

What Do Current Projections Show?

Ever since 2010, Social Security has been paying out more in benefits each year than it collects in payroll taxes. If this were a temporary blip due to the recession, that would be one thing, but the gap between spending and revenues will continue to grow almost every year from here on out. As the population ages, there will be more people in retirement and fewer people paying into the system. In 1990 there were 3.4 people contributing to Social Security for every person taking out, but that ratio has fallen to 2.8:1 today and will fall to 2:1 in the coming decades. This spells trouble for both the program itself, which is a pay-as-you-go system, and for the federal budget at large. According to the independent Congressional Budget Office, Social Security's disability program is set to go broke in 2017, and the combined old-age and disability elements in 2031.

[chart:5200]
Source: Social Security Trustees, 2013
Learn more:

Does Social Security Contribute to the Deficit?

Whether Social Security adds to the deficit or not has been a hot topic and depends on how you view the program -- either as a stand alone program or as a part of the overall budget. Under both perspectives, however, Social Security is on an unsustainable path. When looking at Social Security as a stand-alone program, separate from the federal budget, it will exhaust the $2.6 trillion it holds in its trust funds by 2031 according to the Congressional Budget Office and 2033 according to the Social Security Trustees. At that point, benefits for all current and future beneficiaries would be chopped immediately by 23 percent. That's no way to run such a vital program and protect those who truly rely on it. When looking at Social Security as part of the federal budget, the gap between Social Security spending and revenues will require the U.S. Treasury to borrow more and more, which will push up U.S. deficit and debt levels. That's simply a fact.

Learn more:

What Can Lawmakers Do to Fix the Program?

Reforming Social Security is imperative. Luckily, the options for reform are well known and boil down to adjusting benefit levels, raising new revenues, or some combination of the two. For those who rely on the program, who are planning on receiving full benefits in the future, and for addressing federal budget challenges -- lawmakers should work toward reforming Social Security on a bipartisan basis. Reforms to Social Security will take time to phase in, as they should, which is why starting sooner rather than later makes it much easy to shore up the program's finances.

Design your own Social Security reform plan to shore up the program's finances with CRFB's interactive tool: The Social Security Reformer!

Learn more:

How Does Social Security's Disability Insurance Program Fit Into the Picture?

In addition to the well-known old-age program, Social Security also provides benefits for those who become disabled and are no longer able to work. Of the over $800 billion the federal government will spend on Social Security in 2013, a little over $140 billion is related to the disability program, which will provide benefits to over 10 million Americans. However, the Social Security Disability Insurance trust fund is due to be exhausted in 2017 according to CBO, at which point benefits would be cut by nearly 20 percent if lawmakers do not take action. Lawmakers may choose to transfer funding from the old-age program, but that's not a sustainable solution -- the entire Social Security program will become insolvent as soon as 2031. Currently, the disability program is administratively overburdened and many beneficaries are subjected to a lengthly appeals process. Disability reform could not only improve the finances of the program, but also its effectiveness by reducing fraud and abuse and improving administration and incentives for work.

Learn more:

For more, read our blogs and papers on Social Security.