Under current law, the cost of Social Security will generally increase faster than the program’s income because of the aging of the baby-boom generation, continuing low fertility (compared to the baby-boom period), and increasing life expectancy. Based on the Trustees’ best estimate, program cost will exceed tax income in 2010 and 2011 due to the economic recession and to an expected downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the Trust Funds in earlier years. Annual cost is projected to be less than tax income in 2012 through 2014, and then to exceed tax income beginning in 2015. Thereafter, annual deficits will increase generally through the remainder of the 75-year projection period. Social Security’s combined trust funds are projected to allow full payment of scheduled benefits on a timely basis until the trust funds become exhausted in 2037. At that time, annual tax income to the trust funds is projected to equal about 78 percent of program cost. By 2084, annual tax income is projected to be about 75 percent as large as the annual cost of the OASDI program.
Separately, the OASI and DI funds are projected to have sufficient funds to pay full benefits on time until 2040 and 2018, respectively. Given that the DI fund is projected to become exhausted in 2018, some action will almost certainly be needed in the next few years. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994.
Over the full 75-year projection period, the actuarial deficit estimated for the combined trust funds is 1.92 percent of taxable payroll — 0.08 percentage point smaller than the 2.00 percent deficit projected in last year’s report. Solvency of the combined OASDI Trust Funds for the next 75 years could be restored under the intermediate assumptions if increases were made equivalent to immediately and permanently increasing the Social Security payroll tax from its current level of 12.40 percent (for employees and employers combined) to 14.24 percent. Alternatively, changes could be made that are equivalent to reducing scheduled benefits by about 12.0 percent. Other ways of reducing the deficit include transfers of general revenue or some combination of approaches.
If no substantial action is taken until the combined trust funds become exhausted in 2037, then changes necessary to make Social Security solvent over the next 75 years will be concentrated on fewer years and fewer generations:
Either of these actions would eliminate the shortfall for the 75-year period as a whole by specifically eliminating annual deficits after trust fund exhaustion. Based on the assumption of continued increase in the average age of the population after the 75‑year period (due to expected improvement in life expectancy), Social Security’s annual cost will very likely continue to grow faster than scheduled tax revenue after 2084. As a result, ensuring solvency of the system beyond 2084 would likely require further changes beyond those expected to be needed for 2084.
The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers can be given time to plan for them. Implementing changes sooner will allow the needed revenue increases or benefit reductions to be spread over more generations. Social Security plays a critical role in the lives of 54 million beneficiaries and 155 million
covered workers and their families in 2010. With informed discussion, creative thinking, and timely legislative action, present and future Congresses and Presidents can ensure that Social Security continues to protect future generations.
