The Congressional Budget Office (CBO) released a new report that estimates the benefit payment schedule of the Social Security program, saying that the Old-Age and Survivors Insurance (OASI) Trust Fund will “decline to zero” in fiscal year 2034 and the Disability Insurance (DI) Trust Fund will do the same in 2064.
The report is based on testimony offered by Molly Dahl, CBO’s chief of long-term analysis, before the U.S. Senate budget committee.
This is generally consistent with prior forecasts, but other exhaustion timelines in recent years have floated between 2034 and 2035. CBO added that “starting in a decade, Social Security’s revenues will not be sufficient to cover all of the benefits that are due under current law,” according to the report.
Social Security payments are often a primary source of income for people in retirement who no longer collect a regular paycheck from work. Beneficiaries become eligible for benefits beginning at age 62, but these benefits are significantly lower for those who do not elect to wait until age 67 or 70.
CBO offers two prescriptions for extending the payment timeline in its forecast. One would increase the Social Security payroll tax “immediately and permanently” by 35% — from the current rate of 12.4% of taxable earnings up to 16.7%. The other would reduce benefits by 24%.
“Alternatively, Social Security’s finances could be bolstered through a combination of changes to taxes and benefits or through transfers from the general fund of the Treasury to the trust funds,” the report stated.
Uncertainty about economic and demographic trends in the country add to the broader uncertainty about long-term projections for Social Security.
“For instance, if the economy grows more quickly than CBO projects, the trust funds’ annual revenues will be greater, and the changes to taxes or spending that would be necessary to pay benefits as scheduled under current law through 2098 would be smaller,” CBO said. “If, instead, the economy grows more slowly than projected, revenues will be smaller, and the necessary changes would be larger.”
CBO projects the health of Social Security for 75 years into the future by using “a detailed microsimulation model that starts with data about individuals from a representative sample of the population and simulates demographic and economic outcomes for that sample over time,” the office explained.
Just a few months ago, the Social Security Administration (SSA)’s board of trustees predicted that the fund will last a year longer than previously predicted, running out in 2035. CBO trims that projection in its own model by one year, but attention will be required from both the House of Representatives and the Senate to get the lofty goal of substantive reform over the legislative finish line.
The issue of Social Security reform is one that highlights severe disagreements between the two major political parties, and the narrow balances of power between them in both houses of Congress has made any meaningful progress difficult.
Despite political pressure to act and lawmakers failing to come to a consensus, the most recent effort to address the program’s challenges came from a bill supported by Democrats and independents in the House and Senate.
The proposal would increase monthly benefits and require the SSA to use a different inflation-calculation formula. It currently uses the Consumer Price Index for Urban Wage Earners (CPI-W) from the previous year. Since Social Security benefits have not kept pace with the rising cost of living for the majority of seniors who live on a fixed income, lawmakers argue that this calculation formula should be changed.
“The Consumer Price Index for Americans aged 62 or older (CPI-E) is another price index that is more reflective of the actual costs incurred by older adults; for example, within CPI-E, medical expenses are weighted more heavily than they are in CPI-W,” a fact sheet about the proposal stated.
Both the House and Senate versions of the bill have stagnated in committee this year and neither currently has any Republican co-sponsors.
Both major candidates in this year’s presidential election have vowed to preserve the Social Security program. The 2024 Republican Party platform vows to “restore economic stability to ensure the long-term sustainability of social security” with no cuts, nor with changes to the retirement age. It does not include any policy descriptions on how to accomplish this.
On the Democratic side, the 2024 platform says the party will honor its “ironclad commitment to protecting social security, Medicare, and Medicaid. We reject any effort to privatize social security or to cut any of the benefits that the American people have earned,” saying it would bolster the strength of the trust fund by increasing taxes on rich Americans.