Last week the Trustees of Social Security released their annual report to Congress. It didn’t get much attention in the media and it is no wonder why: not much has changed since last year. Despite the little attention, the program is still in pretty deep trouble.
The Social Security Trust Fund continues to take in less money from payroll taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es than it is paying out. In 2012, the annual deficit was $169 billion. This year it is projected to shrink to $79 billion due to the expiration of the payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. holiday.
However, as time goes on, the deficit will worsen. According to the report, the Disability Insurance (DI) Trust Fund will deplete in 2016 and the Old Age and Survivors Insurance (OASI) Trust Fund will be depleted by 2033. At this point of depletion, the report estimates, that DI will only be able to sustain 85 percent of the promised benefits and OASI—what we think of when we think of Social Security—will only be able to afford 77 percent of the legally promised benefits. So after these date, people will begin seeing massively reduced benefits if nothing is changed.
Projected over 75 years, the cumulative current-law present value of the unfunded liabilities is $9.6 trillion. These are benefits that are promised today, but have no funding tomorrow and represent real debt for the United States. Extend this to the infinite horizon, the unfunded liabilities soar to $23.1 trillion in promised benefits with no funding.
Remember these are based on some pretty basic assumptions about the economy. If these assumptions don’t hold and people start living longer, having even fewer children, or if they find a cure for cancer down the road, Social Security’s financial problems will only get worse. Reform is definitely needed and one hopes it won’t be long before politicians finally start paying attention again.