Most Americans are of the mindset that the Social Security program is on shaky ground and may not be able to pay benefits when they retire, as numerous public polls have revealed. Turns out their perceptions are based in reality, at least according to one government report.
According to the Congressional Budget Office (CBO), Social Security is projected to run an average shortfall of 12 percent over the next decade, a higher percentage than the agency estimated a year ago.
The CBO report kicked off with a statistic that shows how large Social Security looms in the U.S. economy. In fiscal year 2013, Social Security paid out a total of $808 billion, nearly a quarter of federal spending. About 58 million people currently receive Social Security payments, primarily under the Old Age and Survivor Insurance (OASI) program. Those recipients are either retired workers or their spouses and children (70 percent) or survivors of deceased workers (11 percent). Another 19 percent collect benefits as disability insurance (DI). Of that $808 billion, OASI payments accounted for 83 percent with DI making up 17 percent.
Social Security has two main sources of revenues: a payroll tax (generally 12.4 percent of taxable earnings up to $113,700) that supplies 96 percent of its revenues and an income tax on benefits paid to higher-income beneficiaries. Those tax revenues, along with intra-governmental interest payments, are credited to Social Security’s two trust funds – OASI and DI.
According to the CBO, in 2012, Social Security outlays exceeded annual tax revenues (i.e., total revenues excluding interest credited to the trust funds) by about 7 percent. That gap is projected to widen, on average, to 12 percent over the next decade.
That gulf is forecast to further enlarge as the baby boomers retire en masse, thereby increasing the percentage of Social Security payments relative to the size of the economy. At the same time, tax revenues are likely to remain the same as a share of the economy. Therefore, the CBO calculates that the gap between revenues and disbursements are expected to grow even larger in the 2020s and ultimately could exceed 30 percent of revenues by 2030.
Under current law, the DI trust fund will be laid bare by fiscal year 2017 and the OASI exhausted by 2033. However, if funds between the two funds are shifted in order to prevent a default by the DI fund, then both funds would be drained by 2031.