Economic and demographic changes are responsible for most of the deterioration in the Social Security program’s long-range financial position in the past year.
Robert Reischauer, a trustee on the Social Security and Medicare boards of trustees, gave that assessment today at a Social Security trustees’ report hearing organized by the House Ways and Means Committee’s Social Security subcommittee.
The trustees now project that the main Social Security trust fund will be exhausted in 2038. A year ago, the trustees were predicting the fund would be empty in 2040.
The total Social Security payroll tax rate is now 12.4%.
Over a 75-year projection period, the trust fund would need an extra 1.92% of taxable payroll to come into balance, up from 1.62% of taxable payroll a year ago, Reischauer said.
“This 0.3 percentage point change is the largest single-year deterioration in Social Security’s actuarial balance since the 1994 trustees’ report,” Reischauer said, according to a written version of his remarks provided by the committee.
“No legislation enacted during the past year significantly affected Social Security’s long-range financial position,” Reischauer said.
Improvements in mortality account for about one-third of the increase in the long-range actuarial deficit, and a soft economy and low interest rates account for about one-six of the deterioration, Reischauer said.
Improvements in methods and data account for another one-sixth of the deterioration, Reischauer said.
Reischauer noted that the Social Security trust fund also will suffer from a projected loss of workers who pay payroll taxes into the fund without collecting benefits.
“The recent and projected decline in net immigration of those other than legal immigrants, attributable largely to the recession and weak recovery, account for another one-sixth of the deterioration in the long-run actuarial balance between the 2010 and 2011 reports, Reischauer said.
Another trustee, Charles Blahous III, said Congress should minimize the effects of imbalance in the Social Security trust fund by making financial corrections at the earliest practicable time.
Projections in the trustees’ reports often assume Congress will willing to approve cuts in benefits, Blahous said.
“In the past,” Blahous said, “policy makers have been reluctant to significantly reduce the benefits of those who have already begun to collect them. In a practical sense, therefore, changes adversely affecting younger generations are likely to be much more severe than indicated in these simple illustration.”
The longer Congress waits to act, the more adjustments will be concentrated on a smaller number of individuals and the shorter and more intense that painful time period will be, Blahous said.