IWS Documented News DAILY POSTINGS

IWS Documented News Service

_______________________________

Institute for Workplace Studies-----------------Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor--------------------Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

________________________________________________________________________

This service is supported, in part, by donations. Please consider making a donation by following the instructions at http://www.ilr.cornell.edu/iws/news-bureau/support.html

 

Congressional Research Service (CRS)

 

Social Security: What Would Happen If the Trust Funds Ran Out?

Noah P. Meyerson,  Analyst in Income Security

August 28, 2014

http://fas.org/sgp/crs/misc/RL33514.pdf?

[full-text, 17 pages]

 

Summary

The Social Security Trustees project that, under their intermediate assumptions and under current

law, the Disability Insurance (DI) trust fund will become exhausted in 2016 and the Old-Age and

Survivors Insurance (OASI) trust fund will become exhausted in 2034. Although the two funds

are legally separate, they are often considered in combination. The trustees project that the

combined Social Security trust funds will become exhausted in 2033. At that point, revenue

would be sufficient to pay only about 77% of scheduled benefits.

 

If a trust fund became exhausted, there would be a conflict between two federal laws. Under the

Social Security Act, beneficiaries would still be legally entitled to their full scheduled benefits.

But the Antideficiency Act prohibits government spending in excess of available funds, so the

Social Security Administration (SSA) would not have legal authority to pay full Social Security

benefits on time.

 

It is unclear what specific actions SSA would take if a trust fund were exhausted. After

insolvency, Social Security would continue to receive tax income, from which a majority of

scheduled benefits could be paid. One option would be to pay full benefit checks on a delayed

schedule; another would be to make timely but reduced payments. Social Security beneficiaries

would remain legally entitled to full, timely benefits and could take legal action to claim the

balance of their benefits.

 

To delay insolvency of the DI trust fund, Congress could effectively transfer funds from the OASI

to the DI trust fund, for example by increasing the share of Social Security payroll tax revenues

that are credited to the DI trust fund. Such action would hasten the insolvency of the OASI trust

fund, however.

 

Maintaining financial balance after trust fund insolvency would require substantial reductions in

Social Security benefits, substantial increases in income, or some combination of the two. The

trustees project that following insolvency of the combined funds in 2033, Congress could restore

balance by reducing scheduled benefits by about 23%; the required reduction would grow

gradually to 27% by 2088. Alternatively, Congress could raise the Social Security payroll tax rate

from 12.40% to 16.2% following insolvency in 2033, then gradually increase it to 17.3% by

2088. To maintain balance in later years, larger benefit reductions or tax increases would be

required.

 

Trust-fund insolvency could be avoided if outlays were reduced or income increased sufficiently.

The sooner Congress acts to adjust Social Security policy, the less abrupt the changes would need

to be, because they could be spread over a longer period and would therefore affect a larger

number of workers and beneficiaries. Even if changes were not implemented immediately,

enacting them sooner would give workers and beneficiaries time to plan and adjust their work and

savings behavior.

 

Contents

Introduction ...................................................................................................................................... 1

The Social Security Trust Funds ...................................................................................................... 1

How the Trust Funds Work ........................................................................................................ 1

Trust Fund Receipts ............................................................................................................. 2

Trust Fund Expenditures ..................................................................................................... 2

Annual Surpluses and Deficits ............................................................................................ 2

Trust Fund Solvency ........................................................................................................... 3

Historical Trust Fund Operations .............................................................................................. 3

Cash-Flow Surpluses and Deficits ...................................................................................... 3

Near-Insolvency in the Early 1980s .................................................................................... 3

Social Security Financial Projections ........................................................................................ 4

Trust Fund Ratio .................................................................................................................. 4

Legal Background on Trust Fund Insolvency .................................................................................. 5

The Antideficiency Act .............................................................................................................. 5

Legal Entitlement to Social Security Benefits ........................................................................... 6

What Happens to Benefits in the Case of Insolvency? .............................................................. 6

What If Congress Waits to Act? ....................................................................................................... 7

Benefit Cut Scenario .................................................................................................................. 8

Size of Benefit Cuts............................................................................................................. 8

Payroll Tax Increase Scenario ................................................................................................. 11

Size of Payroll Tax Rate Increases .................................................................................... 12

Impact of Payroll Tax Increases ........................................................................................ 12

Conclusion ..................................................................................................................................... 13

 

Figures

Figure 1. Social Security Trust Fund Ratios .................................................................................... 5

Figure 2. Payable Benefits as a Share of Scheduled Benefits at Current Law Payroll Tax

Rates, 2014-2088 .......................................................................................................................... 8

Figure 3. Replacement Rates Under Benefit Cut Scenario, 2014-2088 ......................................... 10

Figure 4. Initial Real Annual Payable Benefits Under Benefit Cut Scenario, 2014-2088 ............. 11

Figure 5. Combined Payroll Tax Rate Needed To Fund Scheduled Benefits, 2014-2088 ............. 12

 

Tables

Table 1. Current Social Security Benefit Payment Schedule ........................................................... 7

 

Contacts

Author Contact Information........................................................................................................... 13

 

________________________________________________________________________

This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.