Social Security Feels Impact of Pandemic, Now Largely Reversed, Says CEPR Economist

In response to the Social Security and Medicare Trustees' Reports released Tuesday, CEPR senior research fellow Max B. Sawicky issued the following statement:

"The 2021 report, issued on August 31st, pinpoints 2034 as the year when the OASDI (Old Age, Survivors, and Disability Insurance) trust fund's accumulated surpluses are exhausted. The report does not predict doom for the program. The essential features of the Social Security program have not changed.

"The pandemic worsens the outlook for Social Security, as indeed does any economic downturn, but in the current circumstances, only marginally. The 'year zero' of Trust Fund exhaustion, its exaggerated importance notwithstanding, is only moved closer by a single year.

"Social Security's chief actuary, Stephen Goss, asserted last year that 'the pandemic-induced recession may be largely recovered by 2023 with little permanent effect.' The most recent GDP and employment data indicate that the decreases in 2020 have now been largely reversed.

"The typical scare rhetoric on Social Security likes to throw out the term 'insolvency.' Insolvency sounds like an economic problem. It is really a legal and political matter. Resources assigned to finance benefits by law suddenly decrease in 2034. The government's ability to pay such benefits does not change at all.

"The program's financing need not be limited to the current payroll tax. Increasing wage inequality means more and more potential taxable payroll falls above the current 'taxable maximum' ($142,800 a year in 2021). Incremental tax base expansion spread over this lengthy period can ensure that dedicated payroll tax revenue keeps up with costs.

"In the new Trustee's report, the Trust Fund balance at year end 2020 was $2,908 billion. In 2020, tax income to the fund was $1,042 billion. In future years, expenses are projected to grow faster than tax income and interest earnings, which means that the Trust Fund's reserves will be progressively reduced. The Trustees' report projects it to hit zero in 2034.

"However, at no point is the Fund 'broke,' since if over a hundred million workers are paying the payroll tax, the Fund has revenue. The notion that the program could somehow 'not be there' or 'run out of money' was always ridiculous.

"By law and according to the projections, taxes will have been needed to fill such gaps over the preceding 12 years. For instance, the amount grows from $65 billion in 2020 to $351 billion in 2030. No sudden cut in benefits or pressure on Federal taxes are implied.

"$351 billion would be a lot in the context of this year's Federal budget or GDP. By 2030, however, projected GDP is $33,151 billion, of which $351 billion would be about 1 percent. As noted above, this one percent would not result from an immediate addition to taxes, but would in effect be phased in over the previous decade. Tax increases of this magnitude have occurred over much shorter time periods in the past.

"The average monthly Social Security benefit is $1,548. For the bottom 80 percent of the population, wealth outside of owner-occupied homes is minimal. Dependence on Social Security as the sole source of income places tens of millions of households in financially precarious circumstances.

"A more rapidly growing economy can ensure greater economic security for retirees, the disabled, and their survivors, among others."