23% Benefit Cuts and 4 Other Things About the Future of Social Security

a new Congressional Budget Office Report projects an even more dire outlook for the future of Social Security than previously estimated. If no action is taken to fix the situation, huge benefit cuts for beneficiaries will begin in 2033. And avoiding those cuts will require massive tax increases for American workers that will start immediately.

In contrast to the Social Security Trustees’ Own Projectionsthe CBO estimates that Social Security’s combined retirement and disability insurance programs will run out of money two years sooner (2033 instead of 2035) and that the tax increases needed to fund scheduled benefits are higher than the Trustees of Social Security Projected Social (4.9 percentage points instead). of 3.24.

The divergence stems from different economic and demographic assumptions, of which CBOs are significantly more realistic.

For example, the CBO uses a lower fertility rate that is more in line with current trends, while the Trustees assumed that fertility rates will increase significantly. The fertility rate is the total number of births in a year for every 1,000 women of reproductive age.

The trustees also assumed only 4.5% price inflation in 2022 and 2.3% in 2023, while the CBO report noted the recent 8.7% increase in cost of living by 2023.

Under any set of projections, the future of Social Security is is not safe. The program is running out of time and money, recent increases in government spending and debt have crowded out reform options, and virtually all Americans stand to lose from politicians’ inaction.

Americans deserve to know the truth about the future of Social Security so they can weigh the best options for reform. The CBO report reveals five hard truths:

  • Social Security has a spending problem. Social Security started out as a 2% tax, and the program promised to never take more than 6% of workers’ paychecks. Today, 12.4% is needed, and even that is well below the ever-rising costs of the program. The CBO projects that Social Security costs will rise 42% over the next 75 years as your income remains stable. Protecting Social Security requires curbing its excessive cost growth.
  • Inaction means 23% benefit cuts from 2033. Current law requires Social Security benefits to come from the program, so once the trust fund is depleted, Social Security will only be able to pay out as much in benefits as it receives in taxes. That will mean about a $5,000 cut in annual benefits for a typical retiree and about $4,000 less for the average disability beneficiary. No one, not even those 98 years old, will be exempt from these cuts.
  • Anyone age 56 or younger today will not receive a full benefit. Anyone age 56 or younger today will not reach Social Security’s normal retirement age of 67 before the program runs out of money. And anyone currently between the ages of 57 and 107 who is still alive and receiving benefits in 2033 will also be subject to benefit cuts.
  • Younger workers have the most to lose. If lawmakers don’t act and benefit cuts begin in 2033, the CBO estimates that people born in the 1960s will experience a 19% reduction in their lifetime benefits, those born in the 1970s will experience a 26% and those born in the 1980s and 1990s will experience a 27% reduction. Research from The Heritage Foundation shows that Social Security is a especially raw treatment for younger workers who have to put their money into a broken system instead of savings accounts that would generate positive returns. The average worker could have three times the retirement income if she had been able to own and invest her Social Security taxes, and even the lowest-earning workers could have 40% more. See the two examples below.
  • Preventing insolvency through tax increases would require a 17.3% payroll tax. The CBO says that maintaining scheduled Social Security benefits for the next 75 years would require an immediate increase in the Social Security payroll tax, from 12.4% to 17.3%. This would mean $12,250 in Social Security taxes for the average household that has about $71,000 in income. Adding in Medicare and federal and state income taxes would bring the average household marginal tax rate to around 48%.

The CBO report reveals a bleak future for the majority of Americans who have been forced to contribute to the failing Social Security system.

While there’s no way to undo the past excesses that have made Social Security popular and bankrupt, the good news is that there is a way to protect America’s most vulnerable while improving Social Security for current generations and future. The Heritage Budget Plan provides a the entire reform plan.

For years, politicians have turned a blind eye to the insolvency of Social Security, even as its deficits have grown to $20.4 billion, or $157,000 per household. But policymakers should embrace Social Security reform as a way to benefit all americans.

By focusing the program on its purpose of providing financial security and protecting seniors from poverty, modernizing the program for today’s economy and job market, and allowing workers the option to use part of their Social Security taxes to build wealth in the personal accounts they own, it is possible to get more people—and the whole economy-Better without.

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