The divergence comes from different economic and demographic assumptions—of which the CBO’s are significantly more realistic.
For example, the CBO uses a lower fertility rate that is more in line with current trends while the trustees assumed fertility rates will significantly increase. The fertility rate is the total number of births in a year per 1,000 women of reproductive age.
- Social Security has a spending problem. Social Security started out as a 2 percent tax, and the program promised to never take more than 6 percent of workers’ paychecks. Today, it takes 12.4 percent, and even that falls far short of the program’s ever-rising costs. The CBO projects that Social Security’s costs will increase by 42 percent over the next 75 years as its revenues remain stable. Protecting Social Security requires reining in its excessive cost growth.
- Inaction means benefit cuts of 23 percent beginning in 2033. Current law requires that Social Security benefits come from within the program, so once the trust fund runs dry, Social Security will only be able to pay as much in benefits as it receives in taxes. That will mean a roughly $5,000 cut in annual benefits for a typical retiree and about $4,000 less for the average disability beneficiary. No one—not even 98-year-olds—will be exempt from these cuts.
- Anyone who is 56 years old or younger today won’t receive a full benefit. Anyone who is 56 or younger today will not reach Social Security’s normal retirement age of 67 before the program runs out of money. And anyone who is currently between the ages of 57 and 107 today who is still alive and collecting benefits in 2033 will also be subject to benefit cuts.
- Younger workers have the most to lose. If policymakers fail to act and benefit cuts begin in 2033, the CBO estimates that people born in the 1960s will experience a 19 percent reduction in their lifetime benefits, those born in the 1970s will experience a 26 percent reduction, and those born in the 1980s and 1990s will experience a 27 percent reduction. Research from The Heritage Foundation shows that Social Security is an especially raw deal for younger workers who have to put their money into a broken system instead of into savings accounts that would generate positive returns. The average worker could have three times as much retirement income if they had been able to own and invest their Social Security taxes—and even the lowest-income workers could have 40 percent more. See the two examples below.
- Preventing insolvency through tax increases would require a 17.3 percent payroll tax. The CBO says that maintaining Social Security’s scheduled benefits for the next 75 years would require an immediate increase in Social Security’s payroll tax, from 12.4 percent to 17.3 percent. This would mean $12,250 in Social Security taxes for the median household that has about $71,000 of income. Adding in Medicare and federal and state income taxes would bring the median household’s marginal tax rate to about 48 percent.