Waiting to Fix Social Security Just Increases the Pain, GAO Warns

There is broad-based agreement that the Social Security system is in dire need of a course correction, with the main trust fund used to support the payment of retirement benefits currently on track to run dry by 2033.

Despite the clear need for reform, policy experts see no signs that Democrats and Republicans in Congress will be able to strike a deal to “save” Social Security anytime soon. Far more likely, they say, is ongoing posturing and electioneering that treats Social Security’s funding shortfall as more of a political football than the pressing crisis that it is.

A new report published Thursday by the Government Accountability Office bemoans the stalemate, warning in no uncertain terms that every day that goes by without a fix for Social Security just deepens the hole from which the program will have to be rescued.

Taking action today, the GAO says, would both reduce the scope of changes needed and give future retirees more time to adjust their plans.

Social Security’s Funding Deficit

As highlighted in the GAO’s new analysis, the costs for Social Security’s benefit program for retirees — which are paid from the Old-Age and Survivors Insurance Trust Fund — have been exceeding the program’s tax revenues since 2010, and they are projected to continue doing so.

Unless action is taken, the GAO warns, the program is projected to be unable to pay full scheduled benefits in just 10 years. At that time, benefits would need to be cut by between 20% and 25%, depending on the economic assumptions one takes into account.

What is indisputable, according to the GAO, is that taking action sooner rather than later is the right and rational thing to do. As the report spells out, for nearly 90 years, American workers and their families have counted on Social Security benefits to pay their bills and maintain their standard of living in retirement.

Allowing the program to fall into fiscal turmoil would not only jeopardize the retirements of millions of households, but it could also lead to broader economic instability and deeply erode the trust and confidence working Americans have in the federal government.

The Stakes Are High for Retirees

According to the GAO, many Social Security beneficiaries rely on the program for the majority of their income while retired — but that doesn’t mean retired Americans are living lives of luxury. Instead, Social Security represents a lifeline that keeps millions of retired Americans above the poverty line, if only barely.

Specifically, in 2023, Social Security benefits will replace just over 71% of pre-retirement earnings for newly entitled beneficiaries with relatively low career average earnings of about $15,900 per year. These beneficiaries will receive about $11,300 in benefits for the year.

Overall, the GAO reports, Social Security benefits represent a substantial percentage of many workers’ total retirement income, ranging from 83% of income for the lowest income quintile to 30% for the fourth income quintile.

As the GAO emphasizes, these benefits are by no means a free lunch for retirees. Instead, they are earned over the course of a working career, with employees’ contributions to the system being complemented by contributions from employers.

Under current rules, workers and employers pay a payroll tax that funds Social Security retirement benefits, and the amount of that tax that is allocated to the OASI Trust Fund is 10.6%. Half comes from employers and half from employees.

The amount of a worker’s earnings subject to payroll taxes is capped, the GAO notes. For 2023, this cap — referred to as “maximum taxable earnings” — is $160,200. Social Security’s other sources of revenue include income taxes attributable to Social Security benefits and interest income on the trust fund’s assets.

GAO Calls for Earlier Action

After spelling out the size and scope of Social Security’s funding issues, the GAO report highlights data and projections from the 2023 Social Security Trustees Report to suggest that early action would be advisable.

“Earlier action, and more certainty about future changes, would allow changes to be more gradually phased in and would also better allow workers to adjust to any changes and factor them into their retirement plans,” the report states.

According to the GAO, Congress will need to evaluate a range of different potential reform options with complex and wide-ranging effects. Options include making higher levels of income subject to the portion of payroll taxes dedicated to Social Security or raising Social Security’s normal retirement age. Other proposals involve revisiting spousal and survivor benefits to ensure they help retirees stay out of poverty.

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