Updated May 6, 2019
Social Security’s Funding Shortfall
Overview

(less than 1%) of other income (including reimbursements
Social Security provides monthly cash benefits to retired or
from the U.S. Treasury’s general fund).
disabled workers, their family members, and family
members of deceased workers. It is the federal
Social Security coverage is nearly universal, with an
government’s single largest program, both in terms of the
estimated 93% of all workers participating in the system.
number of people affected (i.e., workers paying into the
The Social Security payroll tax rate is 12.4%, divided
system and beneficiaries) and its finances. Many people of
evenly between the worker and the employer; the tax is
all ages have some connection to the program, including an
applied to the worker’s earnings up to an annual limit
estimated 176 million covered workers and approximately
($132,900 in 2019). Any covered earnings above the annual
63 million beneficiaries (of whom 4.2 million are children).
limit are not subject to the Social Security payroll tax and
are not counted in the worker’s benefit computation. Social
The program’s income and outgo are accounted for with the
Security benefits are intended to replace part of a worker’s
Social Security trust funds. They represent funds dedicated
earnings. As such, a worker’s benefit is based on his or her
to pay current and future Social Security benefits. In 2018,
career-average earnings in covered employment (i.e.,
the program had total income of $1,003 billion (91.7% from
earnings up to the taxable limit) and a progressive benefit
dedicated tax revenues), total expenditures of $1,000 billion
formula that is intended to provide adequate benefit levels
(98.8% for benefit payments), and trust fund reserves of
for workers with low career-average earnings.
$2.9 trillion (U.S. Treasury securities) available for future
program spending. With these asset reserves, the trust funds
are projected to remain “solvent”
Issue Before Congress
until 2035. That is, until
that time, the trust funds are projected to be able to pay full
 Over its 83-year history, Social Security has col ected $21.9
benefits scheduled under current law on a timely basis. In
tril ion and paid out $19.0 tril ion, leaving trust fund asset
2035, however, the trust fund reserves are projected to be
reserves of more than $2.9 tril ion.
depleted. While the program would continue to operate
 Projections show that Social Security wil be unable to pay
with scheduled tax revenues, those revenues are projected
scheduled benefits in ful and on time starting in 2035,
to cover about 80% of scheduled benefits through the end
primarily due to demographic factors.
of the projection period (2093). It is unclear how the U.S.
Treasury would handle the payment of scheduled benefits
What Is Social Security’s Projected
under such a scenario.
Financial Outlook?
For many years, Social Security collected more tax
Social Security’s projected long-range funding shortfall is
driven largely by demographic factors. Declines in fertility
revenues than needed to pay benefits, resulting in the
accumulation of trust fund asset reserves (held in the form
and increases in longevity result in a lower ratio of workers
of interest-bearing U.S. Treasury securities) available for
to beneficiaries (projections show the ratio of workers
paying into the system to support each beneficiary is
future program spending. Starting in 2010, however, Social
Security’s total expenditures began to exceed noninterest
estimated to fall from 2.8 in 2018 to 2.2 in 2035). Changes
income (i.e., cash-flow deficits emerged), requiring the
to Social Security have long been an issue of interest to
Congress from a trust fund solvency perspective. Policy
program to draw on trust fund reserves to pay scheduled
proposals to address Social Security’s projected funding
benefits. The Social Security Board of Trustees (the
trustees) projects that Social Security will continue to run
shortfall typically include a combination of revenue
increases and benefit adjustments. Although the process of
cash-flow deficits throughout the 75-year projection period
(2019-2093) and that annual cash-flow deficits will grow
selecting specific program changes would likely involve
markedly over time. For example, the program’s cash-flow
intense debate in Congress, policymakers generally agree
that taking legislative action sooner rather than later could
deficit is projected to be $81 billion in 2019 and $457
billion in 2034 (constant 2019 dollars). (2019 Social
mitigate the effects on workers and beneficiaries and allow
Security Trustees Report, intermediate assumptions.)
people as much time as possible to adjust to the changes.
How Is Social Security Financed?
In 2020, Social Security’s cost is projected to exceed total
income
(i.e., tax revenues plus interest income). Trust fund
Social Security is a self-financing program. Of its total
income, 91.7% is from dedicated tax revenues: (1) payroll
reserves are projected to decline steadily from their peak of
$2.9 trillion to zero in 2035. Following the depletion of
taxes paid by employers, employees, and self-employed
trust fund reserves, scheduled tax revenues are projected to
individuals; and (2) federal income taxes paid by about half
of beneficiaries on a portion of their benefits. The program
be sufficient to pay 80% of scheduled benefits initially,
declining to 75% by 2093.
also receives interest income on the asset reserves held by
the Social Security trust funds (8.3%) and a small amount
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Social Security’s Funding Shortfall
Social Security’s cost is projected to increase faster than
What Can Be Done to Restore Balance?
income over the 75-year period; cost is projected to exceed
Over the years, policymakers have put forth numerous
income by at least 20%. Expressed in other ways, Social
proposals to balance Social Security’s finances and achieve
Security’s projected 75-year actuarial deficit is equal to
other objectives. Such proposals typically include a
2.78% of taxable payroll (total earnings subject to the
combination of revenue increases and benefit adjustments.
Social Security payroll tax with some adjustments) or about
In the past, some proposals would have established a
1% of GDP.
personal account component to the Social Security system
to supplement or replace traditional Social Security
What Is Driving the Projected Funding
benefits. Some of the more commonly discussed proposals
Shortfall?
include increasing the amount of covered earnings subject
Social Security’s future income and costs are determined by
to the payroll tax (the taxable wage base), increasing the
many demographic, economic, and program-specific
payroll tax rate, raising the retirement age, modifying the
factors. These factors include birth rates, death rates,
benefit formula, and changing the annual cost-of-living
immigration, employment rates, productivity gains, wage
adjustment (COLA) calculation.
growth, price growth, interest rates, disability benefits claim
rates, and program design features. Among other things,
Striking a balance between Social Security’s future revenue
they affect the number of covered workers and their level of
and benefit streams can prove challenging. From a policy
earnings, as well as the size and makeup of the beneficiary
perspective, for example, an increase in either the taxable
population and the level of monthly benefits.
wage base or the payroll tax rate could provide an equal
amount of additional revenues. These two options,
The trustees project that the program’s income rate (i.e.,
however, would affect different groups within the
income as a percentage of taxable payroll) will be stable at
population. Increasing the taxable wage base would affect
about 13% throughout the 75-year period. The cost rate,
only the estimated 6% of covered workers who have
however, is projected to increase markedly over the next
earnings above the current taxable wage base, while
two decades (from about 14% to 18%) primarily due to
increasing the payroll tax rate would affect all covered
demographic trends. Economic factors—such as the most
workers. From a political perspective, public opinion
recent recession, which led to lower taxable earnings and
regarding different options can vary among constituencies.
more beneficiaries than expected—play a role. However,
according to the trustees, demographic factors alone would
What Is the Timeframe for Action?
cause the cost rate to increase markedly in coming years.
Social Security is the primary source of retirement income
for many beneficiaries. Given projections showing that in
The cost of the Social Security program is projected to
less than 16 years scheduled benefits cannot be paid, and
increase faster than income primarily due to a decline in the
the magnitude of the projected funding shortfall,
number of workers paying into the system relative to the
policymakers generally agree that legislative action should
number of beneficiaries. Over the next 20 years, the
be taken sooner rather than later. As stated in their 2019
worker-to-beneficiary ratio is projected to decline as the
annual report to Congress, “The Trustees recommend that
baby-boom generation moves into retirement and is
lawmakers address the projected trust fund shortfalls in a
replaced with workers from lower-birth-rate generations.
timely way in order to phase in necessary changes gradually
Although projected increases in life expectancy play a role,
and give workers and beneficiaries time to adjust to them.
the trustees point to the shift in the population’s age
Implementing changes sooner rather than later would allow
distribution due to lower birth rates as the dominant factor
more generations to share in the needed revenue increases
in increased program cost over the next 75 years.
or reductions in scheduled benefits.”
What Happens to Benefits if Trust Fund
To illustrate the magnitude of changes needed to maintain
Reserves Are Depleted?
Social Security solvency over the next 75 years, the trustees
Such a scenario has not occurred in the past, raising
point out hypothetically that it would take
questions about how the Treasury would handle scheduled
benefit payments. Social Security does not have authority to
 an immediate 2.70 percentage point increase in the
borrow from the general fund of the U.S. Treasury to make
payroll tax rate (from 12.40% to 15.10%); or
up for any funding shortfalls; such borrowing would require
legislative action. Yet, the United States is legally obligated
 an immediate 17% reduction in scheduled benefits for
to make Social Security payments to any person who meets
all current and future beneficiaries (or a 20% reduction
the eligibility requirements established in Title II of the
for newly-eligible beneficiaries only); or
Social Security Act, and the act states that benefits shall be
paid only from the Social Security trust funds. At the same
 some combination of these approaches.
time, the Antideficiency Act prevents an agency from
paying more in benefits than the amount in the source of
For more information, see CRS Report RL33028, Social
funds available to pay the benefits. It appears that
Security: The Trust Funds.
beneficiaries would have to wait until the Social Security
trust funds receive a sufficient amount of tax revenues to
Barry F. Huston, Analyst in Social Policy
pay full benefits, unless Congress amends applicable laws.
IF10522
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Social Security’s Funding Shortfall


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