CRS Updates Report Highlighting Challenges Facing Social Security

In a recently updated report, the Congressional Research Service (CRS) highlights and examines the challenges facing the Social Security system.

In “Social Security’s Funding Shortfall,” the CRS reports that many people of all ages have some connection to Social Security, which in 2020 includes an estimated 178 million covered worker and 64.5 million Social Security beneficiaries.

For many years, the report says, Social Security collected more tax revenues than it needed to pay benefits, which it reports resulted in the accumulation of trust fund asset reserves available for the future. However, says the CRS, Social Security’s total expenditures began to exceed noninterest income by 2010, which made it necessary to draw on trust fund reserves to pay scheduled benefits.

The CRS cites its earlier report concerning the Social Security Board of Trustees’ 2020 annual report to Congress in which it notes that the two separate trust funds authorized under Title II of the Social Security Act, the Federal Old-Age and Survivors Insurance (OASI) Trust Fund and the Federal Disability Insurance (DI) Trust Fund, will be solvent through 2034 and 2052.

The report cites demographic factors as the primary explanation for the projection that the cost of the Social Security program will increase faster than income: a decline in the number of workers paying into the system relative to the number of beneficiaries. Over the next 20 years, says the CRS, the worker-to-beneficiary ratio is projected to decline as the Baby Boomers retire and their place is taken by workers from generations whose birthrate is lower.

What Is Driving the System’s Shortfall?

The report explains that Social Security’s future income and costs are determined by many demographic, economic and program-specific factors, including:

• birth rates;
• death rates;
• immigration;
• employment rates;
• productivity gains;
• wage growth;
• price growth;
• interest rates;
• disability benefits claim rates; and
• program design features.

Addressing the Challenges

“Striking a balance between Social Security’s future revenue and benefit streams can prove challenging,” says the CRS. For instance, it says, increasing either the taxable wage base or the payroll tax rate could provide an equal amount of additional revenues. But it’s not that simple, it suggests; the report notes that each of those options would affect different groups: Increasing the taxable wage base would affect only approximately 6% of covered workers who have earnings above the current taxable wage base, whereas a payroll tax hike would affect all covered workers. And, it adds, those options entail political consequences.

But whatever is done, the report says, should not be delayed long. It argues that “Social Security is the primary source of retirement income for many beneficiaries. Given projections showing that in less than 16 years scheduled benefits cannot be paid in full and on time, and the magnitude of the projected funding shortfall sooner rather than later.”

A Caveat 

The report notes that the update does not take into account the effects of the COVID-19 pandemic. The trustees had made a similar notation in the press release that accompanied their recent report concerning the Social Security Trust Funds.