If Congress fails to move quickly to shore up Social Security’s finances, beneficiaries may face dramatic benefits cuts sometime around 2041, when the program trust fund runs dry.

U.S. Treasury Department officials make that argument in the first of what they say will be a series of briefs about the challenges facing Social Security.

In the past, Bush administration officials have proposed addressing weaknesses in the Social Security trust fund by supplementing basic Social Security benefits with personal Social Security accounts that could invest in the types of stock funds and bond funds offered by the federal Thrift Savings Plan.

The authors of the new brief focus on the effects of factors such as the aging of the baby boomers and past decisions to pay members of earlier generations more than they had paid into the system.

Dealing with program’s funding shortfall now would be much less painful than waiting till the program trust fund is empty, Treasury officials write in the brief.

“Consider a policy of closing Social Security’s permanent financing gap by immediately increasing the payroll tax rate by 3.5 percentage points,” officials write. “This policy would affect all current and future workers. If the tax increase were instead delayed until 2041, when the trust fund is projected to be depleted, the requisite tax increase would be 5.8 percentage points.”

Similarly, to make Social Security “permanently solvent,” “all retirees’ benefits would have to be cut by 20.4% in 2007 … but this would rise to a benefit adjustment of 30.4% if reform were initiated in 2041,” officials write.

If Congress fails to act and the Social Security trust fund empties, “benefits will be automatically cut to a level that is consistent with then-current payroll tax income,” officials write.

One problem with that approach is that the cuts would hit low-income retirees at least as hard as they would hit high earners, officials write.

“Taking action now will allow people who most depend on Social Security for their retirement income to be shielded, and will allow a more gradual transition to a sustainable system,” officials write.

A copy of the Treasury Department Social Security brief is available