For the first time in decades, both the Social Security Trustees and the Congressional Budget Office project the retirement Trust Fund to be exhausted within ten years.
Today’s rising interest rates, and the worst inflation in 40 years is contributing to this challenge. In 2022, higher inflation resulted in an 8.7% cost-of-living adjustment, Social Security’s highest since 1981.
According to the Congressional Research Service (CRS), once asset reserves are depleted, barring any congressional action, the program can pay out in benefits only the amount it receives from income tax revenues. The trustees project that in 2034—the projected date of combined trust fund depletion—tax revenues will be sufficient to pay about 80% of scheduled benefits. The percentage of benefits supported by revenues from payroll taxes and the taxation of Social Security benefits will gradually decrease to about 74% by 2097.
CBO projects that if Social Security paid benefits as scheduled, spending on the program would increase from 5.2% of GDP in 2023 to 7.2% in 2097. Trust fund balances would be sufficient to pay scheduled benefits through 2097 if payroll tax rates were increased immediately and permanently by about 5.2 percentage points (before accounting for the effects of such changes on the economy).
Such an increase would boost payroll taxes from 12.4% to 17.6%, a relative rise of 42%. Alternatively, a corresponding reduction in benefits of 38% would be sufficient to pay scheduled benefits.