The Social Security trustees projected this week that funding for retirement benefits will run short in 2033, three years sooner than had been estimated a year ago. After that, the program will be able to pay only about 75% of the amount now promised to retirees and the disabled. That's still a long way off, and lawmakers may not want to meddle with Social Security in an election year. But the longer Congress waits to deal with the problem, the harder it will be to solve.
The last time lawmakers made significant changes to Social Security was in 1983, when they raised payroll taxes and gradually increased the retirement age. Those changes were made not just to solve a near-term funding crisis but also to gird the system for the baby boom generation's retirement. By the mid-1990s, however, it became clear that the changes had not gone far enough, and the program was projected to run short of cash before the last of the boomers is off the books.
It's hard to predict exactly how payroll tax revenue will compare with benefit costs in five years, let alone 20, so it makes sense for lawmakers to move carefully. But Social Security was facing a multitrillion-dollar shortfall even before the recession, and the situation has deteriorated since then. Over the last three years, the trustees have steadily raised the estimated cost of restoring the program's ability to pay full benefits for the foreseeable future. They now say it would require the equivalent of an immediate 20% increase in Social Security taxes or a permanent 16% cut in benefits.