2015 OASDI Trustees Report

E. CONCLUSION

Under current law, the projected cost of Social Security increases faster than projected income through 2037 primarily because of the aging of the baby-boom generation and relatively low fertility since the baby-boom period. Cost will continue to grow faster than income after 2037, but to a lesser degree, due to increasing life expectancy. Based on the Trustees’ intermediate assumptions, program cost exceeds non-interest income for 2015, as it has since 2010, and remains higher than non-interest income throughout the remainder of the 75‑year projection period. If there were a change in law permitting the shifting of resources between the OASI and DI Trust Funds, then reserve depletion of the DI Trust Fund could be delayed with no effect on the reserve depletion date for the theoretical combined OASI and DI Trust Funds. Social Security’s theoretical combined trust funds increase with the help of interest income through 2019 and allow full payment of scheduled benefits on a timely basis until the trust fund asset reserves become depleted in 2034. At that time, projected continuing income to the combined trust funds equals about 79 percent of program cost. By 2089, continuing income equals about 73 percent of program cost.

The OASI Trust Fund and the DI Trust Fund are projected to have sufficient reserves to pay full benefits on time until 2035 and 2016, respectively. Legislative action is needed as soon as possible to prevent depletion of the DI Trust Fund reserves in 2016, at which time continuing income to the DI Trust Fund would be sufficient to pay 81 percent of DI benefits. In 1994, lawmakers reallocated the payroll tax rate between OASI and DI, as recommended by the Trustees, to create the time and opportunity for reforms to slow the growth of costs and lead to financial stability. The Trustees reiterate the call for such legislation. However, given the short time remaining before projected DI Trust Fund reserve depletion, such legislation may now need to include some reallocation of resources between the two trust funds. Reallocation of resources in the absence of substantive reforms might, on the other hand, serve to delay DI reforms and much needed corrections for OASDI as a whole.

The 75-year actuarial deficit for the combined trust funds under the intermediate assumptions is 2.68 percent of taxable payroll — 0.20 percentage point smaller than the 2.88 percent deficit in last year’s report. For the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.62 percentage points (from its current level of 12.40 percent to 15.02 percent, a relative increase of 21.1 percent); (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of 16.4 percent applied to all current and future beneficiaries, or 19.6 percent if the reductions were applied only to those who become initially eligible for benefits in 2015 or later; or (3) some combination of these approaches would have to be adopted.

If substantial actions are deferred for several years, the changes necessary to maintain Social Security solvency would be concentrated on fewer years and fewer generations. Much larger changes would be necessary if action is deferred until the theoretical combined trust fund reserves become depleted in 2034. In order to maintain solvency throughout the 75-year projection period and finance scheduled benefits fully in every year starting in 2034, it would be necessary to increase revenues by an amount equivalent to a payroll tax rate increase of about 3.7 percentage points (yielding a total payroll tax rate of about 16.1 percent) at the point of trust fund reserve depletion, with the total rate reaching about 17.4 percent in 2089. Alternatively, solvency could be maintained if benefits were reduced to the level that would be payable with scheduled tax rates and earnings subject to tax in each year beginning in 2034. At the point of theoretical combined trust fund reserve depletion in 2034, this would be equivalent to a reduction in all scheduled benefits of 21 percent, with reductions reaching 27 percent in 2089. Of course, there is a continuum of policies combining tax increases with benefit reductions that would maintain solvency at the point of trust fund depletion.

Some strategies for achieving solvency would not be feasible if delayed until trust fund reserve depletion in 2034. For example, even a temporary 100-percent benefit reduction for those newly eligible for benefits in 2034 would not by itself make it possible to pay all benefits scheduled for payment in that year to those already receiving benefits and to those eligible to receive benefits who have delayed the start of their benefit payments.

It is important to note that a policy closing the 75-year actuarial deficit that relies on some combination of a fixed percentage increase in non-interest income and a fixed percentage reduction in benefits would result in non-interest income initially being substantially greater than expenditures, and trust fund reserves accumulating rapidly. Subsequently, however, non-interest income alone would be inadequate, and reserves would be drawn down to cover the differences. This illustrates that if lawmakers were to design legislative solutions only to eliminate the overall actuarial deficit without consideration of year-by-year patterns, then a substantial financial imbalance could remain at the end of the period, and the long-range sustainability of program financing could still be in doubt. This is especially true if life expectancy of the population continues to improve after the end of the 75-year period, as this would very likely cause Social Security’s annual cost to continue growing faster than non-interest income after 2089. Making changes now that achieve sustainable solvency (that is, result in a trust fund ratio that is positive throughout the long-range period and is either level or increasing at the end of the period) could avoid the need for later legislative changes.

The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes soon would allow more generations to share in the needed revenue increases or reductions in scheduled benefits. Social Security will play a critical role in the lives of 60 million beneficiaries and 168 million covered workers and their families in 2015. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.

For further information related to the contents of this report, see the following websites:

•	www.socialsecurity.gov/oact/tr/2015/index.html

•	www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html

•	www.treasury.gov/resource-center/economic-policy/ss-medicare/Pages/social_security.aspx