Social Security

Debunking 8 Social Security Myths on Its 80th Birthday

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August 14 marks the 80th birthday of the Social Security program, which was established in the Social Security Act of 1935. Over the past 80 years, Social Security has provided important cash benefits and income security to seniors, survivors, individuals with disabilities, and their families – including to nearly 60 million people today.

Yet Social Security is on a financially unsustainable course – and is not on track to be able to pay full benefits through its 100th birthday. Last year, the program paid $73 billion more in benefits than it raised from taxes. As the more of the baby boom population retires and Americans continue living longer, that gap is projected to grow – depleting the trust fund reserves of the disability program late next year and the old age program in the early- to mid-2030s. Failure to address the gap between spending and revenue could result in an immediate 19 percent cut to all workers with disabilities, and a 20 to 30 percent across-the-board cut to retirees.

Sadly, instead of identifying solutions to prevent depletion of the trust funds, many commenters have relied on myths and half-truths to avoid having a conversation about the necessary choices. In this paper, we identify eight such myths – though there are many more:

  • Myth #1: Social Security does not face a large funding shortfall
  • Myth #2: Today’s workers will not receive Social Security benefits
  • Myth #3: Social Security would be fine if we hadn’t “raided the trust fund”
  • Myth #4: Social Security cannot run a deficit
  • Myth #5: Social Security has nothing to do with the rest of the budget
  • Myth #6: We don’t need to worry about Social Security for 20 years
  • Myth #7: Social Security reform is code for slashing benefits, especially for the poor
  • Myth #8: Social Security is too hard to fix

Below, we debunk these myths in the hopes that an honest discussion of the facts will lead policymakers to come together and put Social Security on a sustainable path for the next 80 years.

See the full document below or download it here.

Update 8/17/2015: The original version of this paper described the changes needed to fix Social Security as “modest” while describing the changes that could gradually take place over time. We've updated the language to “incremental” for clarity.


Report: Analysis of the 2015 Social Security Trustees' Report

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Today, the Social Security and Medicare Trustees released their annual reports on the financial health of the programs. Although these projections show some improvements relative to last year, they nonetheless show both programs continue to face large shortfalls that will grow over time. With regards to Social Security, the Trustees show that:

  • The Social Security Disability Insurance (DI) trust fund is on the brink of depletion, and is projected to be exhausted in late 2016 – just over a year from today. Absent legislation, beneficiaries in that program would face an immediate 19 percent across-the-board benefit cut.
  • On a combined basis, or assuming reallocation or interfund borrowing, the Old Age, Survivors, and Disability Insurance (OASDI) trust funds are projected to be exhausted in 2034. At that point, all beneficiaries would face an immediate 21 percent across-the-board benefit cut, which would grow to more than 27 percent by 2090.
  • Over 75 years, Social Security’s actuarial imbalance totals 2.68 percent of taxable payroll, or about 0.96 percent of GDP.
  • The gap between Social Security spending and revenues is projected to grow from 1.3 percent of payroll (0.46 percent of GDP) this year to 3.5 percent of payroll (1.26 percent of GDP) by 2040 and 4.7 percent of payroll (1.62 percent of GDP) by 2090.
  • Overall, this year’s report represents an improvement over last year’s, which showed a combined trust fund exhaustion date of 2033 (one year sooner) and a 75-year actuarial imbalance of 2.88 percent of payroll (0.20 percentage points higher).

Although the projections have slightly improved, Social Security’s long-term outlook is fundamentally unchanged. The SSDI trust fund will be depleted next year, and the combined trust funds by the time today’s 48-year-olds reach the normal retirement age – or when today’s newest retirees turn 81.

Policymakers must act quickly to put Social Security on a path toward solvency. As time goes on, it will be more difficult to secure the Social Security programs for current and future generations with thoughtful changes instead of abrupt benefit cuts or tax increases.

Read the full report below, or at this link (pdf).

Report: Analysis of the 2014 Social Security Trustees' Report

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See our followup blog series for additional information on the Trustees Report not included in the analysis below.

The Social Security and Medicare Trustees released their annual reports today on the finances of both programs. The reports are an annual reminder of the action lawmakers should take to ensure the long-term solvency of Social Security and Medicare – both of which continue to face large and growing shortfalls. With regards to Social Security, the Trustees show that:

  • The Social Security Disability Insurance (DI) trust fund is on the brink of insolvency, and is projected to be exhausted in 2016 – just 2 years from today. Absent legislation, beneficiaries in that program would face an immediate 19 percent across-the-board benefit cut.
  • Assuming reallocation or interfund borrowing, the combined Old Age, Survivors’, and Disability Insurance (OASDI) trust fund is projected to be exhausted in 2033. At that point, absent reform, all beneficiaries would face an immediate 23 percent across-the-board benefit cut.
  • Over 75 years, Social Security’s actuarial imbalance totals 2.88 percent of taxable payroll, or 1.02 percent of GDP. This is modestly higher than the 2.72 percent of taxable payroll (0.98 percent of GDP) imbalance that the Trustees reported last year.
  • The gap between Social Security spending and revenues is projected to grow from 1.3 percent of payroll (0.45 percent of GDP) this year to 3.9 percent of payroll (1.4 percent of GDP) by 2035 and 4.9 percent of payroll (1.7 percent of GDP) by the end of the 75-year window.
  • This report represents the fourth straight year where the 75-year shortfall has increased. In the 2010 report, the shortfall was estimated at 1.92 percent of taxable payroll, but it is now about fifty percent larger at 2.88 percent.

Although the projections have worsened somewhat, Social Security’s long-term outlook is fundamentally unchanged. The DI trust fund will be insolvent in just two years, and the old-age trust fund by the time today’s 48-year-olds reach the normal retirement age – or when today’s 60-year-olds turn 79. The report sends a clear signal on the need for lawmakers to act promptly to reform and secure the Social Security programs for current and future generations


See the full paper below, or download it here.

Op-Ed: Five Facts You Should Know About Social Security

Huffington Post | January 9, 2014

The recent column by Jane White on Social Security reform mischaracterized the position of the Committee for a Responsible Federal Budget (CRFB) and ignored fiscal realities facing Social Security. CRFB is not calling for a 16.5 percent across-the-board cut in Social Security benefits as White suggests. We are, however, calling on policymakers to act sooner rather than later to address the very real financial challenges facing Social Security that White ignores.

The paper that White references compares the cost of fixing Social Security now as opposed to if we wait. It shows how much benefits would need to be reduced now, or revenues would need to be increased, to restore Social Security solvency, compared to the changes that would be required in ten or twenty years from now. The paper in no way advocates an across-the-board cut in benefits (or an across-the-board increase in the payroll tax) as the way to restore solvency, but simply provides estimates to illustrate how the magnitude of changes required will increase if we delay acting.

While CRFB has not endorsed a specific Social Security reform plan, we have commented favorably on a variety of plans which rely on a mix of reductions in promised benefits, increased revenues and targeted benefit enhancements. We have also developed an online tool, the Social Security Reformer, which allows individuals to view the options for changes in benefits and revenues and design their own plan to restore solvency.

Despite acknowledging that she is not knowledgeable on Social Security's finances and needs to research options for fixing Social Security, she pre-emptively rules out any reductions in promised benefits and speaks favorably about proposals to increase benefits. Taking any reduction in promised benefits off the table will jeopardize the ability of policymakers to take action to ensure Social Security is financially sound for future generations and the government is able to meet other priorities. If White were to begin her research into options for fixing Social Security with an open mind, she would learn several facts which might cause her to reconsider her knee-jerk reaction to any reductions in scheduled Social Security benefits:

1. Benefits will be cut by over 23% within the next twenty years if no changes are made. The Social Security system is already running cash shortfalls, which are projected to exhaust the trust fund by 2031 (according to the Congressional Budget Office) or 2033 (according to the Social Security Trustees). At that point, the benefits Social Security would be legally able to pay would be limited to the revenues coming into the program, which would only be sufficient to pay approximately 77 percent of promised benefits. The 23% cut in benefits would apply to all beneficiaries, including those already receiving benefits and low income seniors with benefits at or below the poverty level.

2. Social Security benefits will increase in real terms for future retirees even with changes in benefits to restore solvency Social Security benefits are indexed to wage growth, which increases faster than inflation. As a result, initial Social Security benefits for future retirees will be higher than they are for current beneficiaries even after adjusting for inflation. In addition, increasing life expectancy means future retirees will receive benefits for more years, resulting in much greater lifetime benefits. Under current law, the average lifetime benefit would double in real terms over the next 75 years. Social Security reform plans which include "cuts" in Social Security benefits to restore solvency simply scale back part of this increase and still result in future retirees receiving higher initial benefits and total lifetime benefits than current retirees.

3. The Social Security shortfall cannot be closed solely through increased taxes on upper income taxpayers. Contrary to the assertion being made by some progressives that the problems facing Social Security can be solved simply by eliminating the cap on taxable wages, the Social Security actuaries estimate that eliminating the cap would close about 70 percent of the program's 75-year shortfall and only about 33 percent of the gap in the 75th year. A proposal from Senator Tom Harkin that would also increase benefits across-the-board would solve even less: closing only half of the 75-year shortfall and 20 percent of the gap in the 75th year.

Under the current structure of the system, a portion of the increased revenues raised from wealthier taxpayers by eliminating the wage cap would go to finance higher benefits for these same wealthy individuals when they retire. The amount of the shortfall that would be closed would be somewhat greater - roughly 86% -- if the wages above the current cap were not credited toward benefits. However, breaking any link between higher contributions and higher benefits would represent a fundamental change in the social insurance nature of the program that causes concern among many supporters of social insurance who believe that the link between contributions and benefits is a key feature of the program.

Eliminating the taxable maximum entirely would also make it harder economically and politically to enact further tax increases on upper income taxpayers to meet other needs. Relying on elimination of the taxable maximum to restore Social Security solvency represents a judgment that preserving 100% of promised benefits under Social Security for everyone, including wealthy retirees, is a greater priority than other possible uses of the additional revenues from upper income taxpayers that would be generated by eliminating the taxable maximum.

4. Delaying action will make the options for restoring solvency more painful Not only does waiting to act mean any tax increases or benefit cuts will be steeper, it literally means they will need to be bigger. A shortfall which could be solved with a 16.5 percent across-the-board benefit cut or 2.7 percentage point increase in the payroll tax today would require a 19 percent cut in benefits or 3.3 percentage point increase in payroll tax if we wait a decade to act. This is true for at least two reasons. First, waiting will mean that there are fewer total people to share in the tax increases or spending cuts - that means more increases/cuts per person. Secondly, the longer we wait, the less money is in the trust fund and the less interest it will generate. Ironically, the actions of those who resist efforts to reform Social Security by downplaying the magnitude of the problem and the need for action to address the shortfalls now will actually lead to deeper cuts in benefits for all beneficiaries and/or greater increases in payroll taxes for workers than would otherwise be the case.

5. The major Social Security plans that rely on a combination of benefit changes and increased revenues to restore solvency include targeted benefit enhancements for vulnerable populations at greatest risk of poverty. The Social Security reform proposals in the Simpson-Bowles and Domenici-Rivlin plans include an increase in the minimum benefit that would enhance benefits for low-income workers and a progressive benefit bump up in benefits for the very old and long-term disabled most at risk of outliving their retirement savings. These provisions would provide greater poverty protections than current law.

Earlier plans to restore Social Security solvency such as the plan proposed by CRFB President Maya MacGuineas along with Jeff Liebman and Andrew Samwick and the legislation introduced by CRFB board members Charlie Stenholm and Jim Kolbe had similar benefit enhancements for low-income populations. Providing benefit enhancements targeted at those most at risk of poverty is a much better use of limited resources than an across-the-board increase in benefits for all retirees, including wealthy seniors, as the legislation introduced by Senator Tom Harkin would do.

The future of the Social Security program is a serious issue that deserves a serious debate that honestly acknowledges the challenges facing the program and trade-offs involved in addressing the problem. Absolutist positions ruling out options before even considering them does a disservice to the debate.

Report: Social Security Reform and the Cost of Delay

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Update 8/11/15: We've updated this report with the new data available in the 2015 Trustees report in our blog.

Op-Ed: Should Social Security Cost-of-Living Increases be Trimmed?

CQ Researcher | July 18, 2013

Should we measure inflation as accurately as possible? Of course we should, particularly when the fiscal implications of measuring inaccurately are so large. The so-called chained Consumer Price Index (CPI), a far more accurate inflation index than the one used now, would better reflect retirees’ actual spending patterns and the cost increases they encounter. Economists from the left, right and center broadly agree on that, and their view is affirmed by the nonpartisan Congressional Budget Office (CBO) and the Bureau of Labor Statistics. Adopting this improved measure would also generate more tax revenue, slow government spending growth and strengthen the Social Security system. 

So how can anyone oppose this change? Some special interest groups do so for their own financial benefit, while others argue that seniors face faster price growth or the most vulnerable would be hurt by this change.

Yet alternative measures that purport to show seniors spending more are highly flawed — including in the ways they measure housing and health care — to the point that the CBO has concluded, “It is unclear...whether the cost of living actually grows at a faster rate for the elderly than for younger people.”

Even if a better measure were produced for measuring cost increases affecting only retirees, adopting it would raise serious fairness concerns. Should the one-third of Social Security beneficiaries who are not retirees receive smaller cost-of-living adjustments so seniors can receive larger ones? Should New Yorkers, with their high cost of living, receive a higher percentage than Detroiters? Should each government program get its own index or only those backed by powerful interest groups?

As for the most vulnerable, it makes little sense to measure inflation incorrectly for everyone in order to retain a desired windfall for the neediest. Doing so would cut taxes for the top 1 percent by $1,000 each in order to keep an average $20 tax cut for the lowest fifth. Instead, desired tax relief and benefit enhancements for the most vulnerable should be achieved through targeted reforms designed specifically to strengthen those populations.

Ultimately, the best thing we can do for the most vulnerable in society — at least within Social Security — is to make the program sustainable and solvent and avoid the 23 percent across-the-board benefit cut currently scheduled for when the program’s funds dry up. If we can’t even measure inflation correctly, how can we hope to make the hard choices necessary to keep Social Security funded for future generations?

Op-Ed: Reforming Social Security is Easy — But It Won't Be for Long

The Hill  | June 4, 2014

The latest Social Security Trustees report, released last week, shows a program in peril. Within three years, the Social Security disability trust fund will run out of money, at which point the program will only be able to pay 80 percent of benefits to disabled workers. Assuming policymakers decide to allow the disability fund to take money from the old-age fund, the whole program will become insolvent in 2033.

The good news from the trustees report is that the program is in no worse shape than last year. But that should be of little comfort to anyone on the program two decades from now, who will face an immediate 23 percent benefit cut regardless of age or income.

Fortunately, this tremendously unfair and indiscriminate cut can be avoided. And if we act today, it can be averted through a number of modest and gradual changes that mostly slow and speed growth and give workers plenty of time to plan.

There is no shortage of policy ideas to fix Social Security, and as far as government programs go, Social Security is a relatively simple one. Most of the goals of reform can be met by adjusting a few levers — the initial benefit formula, the retirement age, the cost-of-living adjustment, the payroll tax rate and the maximum income subject to the payroll tax.

Indeed, with an online program called The Reformer: An Interactive Tool to Fix Social Security, anyone with a computer and an Internet connection can design his or her own reform. The tool lets users identify the tax and benefit changes they like in order to make the system sustainably solvent for the next 75 years and beyond.

Want to close the shortfall mainly on the spending side? Start by slowing benefit growth for the top 70 percent of beneficiaries and indexing the retirement age to growing life expectancy. Those two changes alone will get you three-quarters of the way toward solvency.

Want to close the shortfall mainly on the revenue side? You can close that same three-quarters of the gap by increasing the payroll tax from 12.4 to 13.5 percent and raising the maximum amount of income subject to the payroll tax from $114,000 to roughly twice that (though this plan would do far less in the 75th year).

Reforms ranging from measuring inflation more accurately to altering disability benefits to applying the payroll tax more broadly can close the remaining gap and even leave room to enhance benefits for some populations.

As a matter of policy, reforming Social Security just isn’t that hard. And changes can be made in ways that encourage work, exempt current retirees from benefit reductions, protect or enhance benefits for the most vulnerable and keep future benefits at least as generous as today’s for almost everyone else.

Unfortunately, politics has gotten in the way, and politics could be the program’s undoing. Benefit changes as sensible as measuring inflation more accurately have become an anathema to the AARP and to many on the left. And revenue changes as modest as gradually increasing the percentage of wages taxed to the levels seen in the mid-1980s are opposed by Grover Norquist and many on the right.

As a result, inaction may be good politics today, but it is incredibly myopic.

While both sides may prefer to wait until they are in a position to enact a solution on their own terms, the choices necessary to close the shortfall will be much more painful for both sides if we wait. As the baby boomers retire and benefits continue to grow, policymakers will soon lose the ability to phase changes in gradually and allow benefits continue to grow for new beneficiaries in real terms. And not too many years in the future, it will become impossible to exempt current retirees from changes or avoid broad benefit changes that affect even the lowest income beneficiaries.

At the same time, waiting will lead to larger and more broad-based tax increases as fewer generations will be able to share in the burden and benefit change simply won’t be able to phase in fast enough.

In the end, waiting to act will lead to unfair and unnecessarily abrupt changes that would rob today’s workers of the ability to plan and adjust.

Luckily, we have an opportunity to fix Social Security now — the easy way — if both parties are willing to come together and negotiate in good faith. But time is running out.

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