It has lain untouched ever since, perhaps partly because Social Security is not the most pressing strain on federal finances. But it is a very serious one in the medium and long term.
Medicare and the Social Security Disability Insurance program are in far worse shape, and young people have fair warning not to rely on a Social Security check for their retirement. But the Social Security program's trustees have just reminded the nation that this problem hasn't gone away. Politicians need to take notice now, because the challenge of fixing it will only become harder to solve the longer they wait. In our families we do our best for our children; we don't just heap liabilities upon them and expect them to look after us. But politicians are doing the exact opposite.
The new report projects the same bleak future for Social Security as last year's report did. As of 2034, Social Security's trust fund, which is already full only of IOUs, will even run out of theoretical money. At that point, under current law, benefits would be scaled back to match whatever annual amount is being paid in through Social Security payroll taxes. And that amount will be significantly less than what today's taxpayers are expecting for tomorrow. Over a longer time frame of 75 years, the program is on pace to come up $12.5 trillion short of what beneficiaries expect to be paid.
The 2034 deadline might seem far away, but it isn't. The longer Congress waits to act on this, the more painful the eventual fix, or the wrenching failure will be. If Congress were to act immediately to cover the gap, it would either have to increase the rate of the regressive payroll tax by 22 percent, or reduce everyone's benefits by 17 percent. Either way, the heaviest relative burdens would fall on the poor. In the case of an employment tax hike, it would also sharply reduce low-wage employment opportunities, given that the tax makes up a larger share of the employer's labor cost.