Social Security shortfall: Even before coronavirus, funding outlook problematic
Impact of coronavirus has not yet been accounted for by trustees
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Social Security’s reserve funds are expected to be depleted in 2035, at which time the program will no longer be able to pay out benefits in full.
That’s according to the annual Social Security and Medicare trustees' report released Wednesday, which said reserves for the program, which covers the old age and disability insurance programs, will be depleted in 2035. Continuing tax income will be sufficient to cover 79 percent of scheduled benefits.
The forecast remains the same as last year. However, it does not factor in the potential impact of the coronavirus pandemic.
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The trustees are still urging lawmakers to take action sooner than later.
“Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare,” the trustees wrote. “Lawmakers should address these financial challenges as soon as possible.”
Taken separately, the Old-Age and Survivors Insurance (OASI) trust fund will have enough reserves to pay full benefits through 2034. The Social Security disability fund, however, will not run out until 2065, about 13 years later than last year’s projections. That change was attributed to a decline in disabled-worker applications and disability incidence rates.
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The trustees combine the programs in the report to summarize the overall state of Social Security's finances.
Medicare’s hospital insurance trust fund is expected to run out of money in 2026, which remains the same as last year’s projections.
The trustees warned, however, that the cost of the programs relative to GDP will rise substantially in the mid-2030s due to rapid population aging.
Combined, Social Security and Medicare accounted for about 41 percent of the federal budget in fiscal 2019.
Meanwhile, the coronavirus crisis could shake up the outlook.
Since many businesses around the country have been forced to close – and millions of Americans have lost their jobs – payroll tax revenue has likely declined. Unemployment benefits are not subject to the payroll tax. There are also discussions of reducing or temporarily eliminating the payroll tax to alleviate coronavirus-related financial pressures.
Payroll taxes fund Social Security and Medicare. Employers and employees each pay 6.2 percent for Social Security and 1.45 percent for Medicare, and an addition 0.9 percent is levied on the highest earners.
In response to those concerns, Treasury Secretary Steven Mnuchin said the Trump administration is aiming to mitigate any long-term damage.
“The Trump Administration is working around the clock to mitigate any potential long-term negative economic effects of the pandemic, and position the economy once again for strong growth,” Mnuchin said in a statement.
The next report will account for those effects.
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Combined, Social Security and Medicare accounted for about 41 percent of the federal budget in fiscal 2019.
As of March, more than 69.4 million people were receiving Social Security, Supplemental Security Income or both. The average benefit was $1,387.26.