The Social Security trustees projected this week that funding for retirement benefits will run short in 2033, three years sooner than had been estimated a year ago. After that, the program will be able to pay only about 75% of the amount now promised to retirees and the disabled. That's still a long way off, and lawmakers may not want to meddle with Social Security in an election year. But the longer Congress waits to deal with the problem, the harder it will be to solve.
The last time lawmakers made significant changes to Social Security was in 1983, when they raised payroll taxes and gradually increased the retirement age. Those changes were made not just to solve a near-term funding crisis but also to gird the system for the baby boom generation's retirement. By the mid-1990s, however, it became clear that the changes had not gone far enough, and the program was projected to run short of cash before the last of the boomers is off the books.
It's hard to predict exactly how payroll tax revenue will compare with benefit costs in five years, let alone 20, so it makes sense for lawmakers to move carefully. But Social Security was facing a multitrillion-dollar shortfall even before the recession, and the situation has deteriorated since then. Over the last three years, the trustees have steadily raised the estimated cost of restoring the program's ability to pay full benefits for the foreseeable future. They now say it would require the equivalent of an immediate 20% increase in Social Security taxes or a permanent 16% cut in benefits.
There are far less draconian changes that could be made to narrow the long-term funding gap, such as raising the cap on wages subject to payroll taxes. But these measures become less sufficient each year Congress waits to put them into effect. At the very least, lawmakers will have to address the looming shortfall in Social Security's disability funding, which is expected to run out by 2016. The simplest solution to that problem would be to shift money from Social Security's retirement trust fund into disability benefits, but that would only hasten the depletion of the retirement funds.
President Obama's latest budget proposal says he is "committed to making sure that Social Security is solvent and viable for the American people, now and in the future," but such talk is easy; to date, he has offered no proposal to shore up the system's finances. Rather than simply taking shots at what his GOP opponent, former Massachusetts Gov. Mitt Romney, has suggested, the president should offer a plan of his own and engage the public in a debate over the options. The program's problems may seem distant, but the time to start fixing them is now.