Social Security’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits.
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By David Harrison, The Wall Street Journal.
The Social Security program’s costs will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits.
This is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report the trustees of Social Security and Medicare released Tuesday. The program’s income comes from tax revenue and interest from its trust fund.
The trust fund will be depleted in 2034 and Social Security will no longer be able to pay its full scheduled benefits unless Congress takes action to shore up the program’s finances. Without any changes, recipients then would receive only about three-quarters of their scheduled benefits from incoming tax revenues.
The report also said that Medicare’s hospital insurance fund would be depleted in 2026, three years earlier than anticipated in last year’s report. Absent changes, the program then would be able to handle 91% of costs.
The nation’s aging population is boosting the costs of Social Security and Medicare, while revenue gains lag due to slower growth in the economy and the labor force.
About 61.5 million people receive retirement or disability benefits from Social Security and 58.4 million receive Medicare.
The Social Security program works by using payroll taxes paid by workers and employers to pay for retirees’ benefits. What is left over is invested in the trust fund. Interest earned is reinvested in the fund.
Over time, the trust fund has grown to nearly $3 trillion. But long-running demographic trends threaten its finances. Last year, there were 2.8 workers for every Social Security recipient, down from 3.3 in 2007.
Treasury Secretary Steven Mnuchin said in a statement the Trump administration’s efforts to cut taxes, reduce regulatory burdens and overhaul trade agreements would boost economic growth and generate new money for the country’s two largest entitlement programs.
Social Security consists of two programs, one for retirees and one for people who claim disability benefits.
The retirement program’s reserves are projected to be depleted in 2034, a year sooner than projected in last year’s report.
The disability fund is expected to run out in 2032, as opposed to 2028 as forecast in last year’s report. The program’s financial health has improved in recent years as the growth in disability applications has fallen, the report said.
The tax cuts signed into law last year have slightly lowered Medicare and Social Security’s projected revenue over the next few years. Lower income-tax rates reduced projected revenue from the taxation of Social Security benefits. That means less money flowing into both programs because those revenues are transferred to the trust funds.
President Donald Trump’s decision to end a program offering young undocumented immigrants reprieve from deportation while allowing them to work also reduced anticipated tax revenue into the Social Security program, the report said.
Congress has debated ways of bolstering the programs’ finances, but hasn’t agreed on what to do.
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