The Social Security program is facing a long-term funding shortfall of $22.4 trillion, a problem that can be attributed to the aging population. Specifically, birth rates have fallen and life expectancies have lengthened since the post-World War II baby boom, and retirees are now increasing in numbers more quickly than workers.
The ratio of workers to beneficiaries has dropped from 8.6 in 1955 to 2.7 in 2024, according to the Social Security Administration. That's problematic because Social Security is primarily funded by a dedicated payroll tax. With fewer workers paying into the program and more seniors drawing benefits, expenditures are rising more quickly than revenue. That trend is unsustainable and will lead to benefit cuts without Congressional intervention.
The precise timing is uncertain, but the Board of Trustees believes the Old-Age and Survivors Insurance (OASI) Trust Fund will be depleted by 2033. That trust fund is the source of benefits paid to retired workers, spouses, and survivors. Once depleted, payroll taxes would cover an estimated 77% of scheduled payments, so an automatic across-the-board benefit cut of 23% would be possible.
There are three straightforward options to solve the problem.
- Tax increases could boost revenue for the Social Security program.
- Benefit cuts could reduce spending for the Social Security program.
- A combination of the first two solutions could resolve the issue.
The debate about which strategy is best has become a hot topic. That trend will probably intensify as the presidential election draws nearer.
The Republican Study Committee (RSC), a group that includes about 80% of House Republicans, recently published its budget for fiscal 2025. The report addresses Social Security reform, but the proposed fixes are vague and rely entirely on benefit cuts. That is a serious flaw.
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The Republican budget proposal lacks specific facts and figures
The budget submitted by the RSC correctly states that Social Security spending will grow at a tremendous pace over the next decade. Program expenditures are forecast to increase 60% by 2034, according to the Congressional Budget Office. But the RSC budget would bring that figure down to 42% by eliminating $1.5 trillion in Social Security spending during that period.
The Republican Study Committee claims the proposed changes would not only stave off the 23% benefit cuts in the near term, but also make the Social Security trust fund sustainably solvent in the long term. Additionally, the report clearly states that the budget would not cut or delay benefits for seniors in or nearing retirement. However, there's a problem: House Republicans didn't back those claims with specific facts and figures.
Instead, the RSC budget describes a few changes in vague language that is open to interpretation. The quote below comes directly from the 180-page report:
The RSC budget would make modest changes to the primary insurance amount (PIA) benefit formula for individuals who are not near retirement and earn more than the wealthiest PIA benefit factor. It would also make modest adjustments to the retirement age for future retirees to account for increases in life expectancy. Finally, for these individuals, it would limit and phase out auxiliary benefits for high income earners.
Unfortunately, the report doesn't explain what modifications might be made to the benefit formula, nor does it comment on how much full retirement age would increase. The report also fails to define "high income earners."
The Republican budget relies entirely on benefit cuts
The Republican Study Committee didn't provide enough detail in their budget to say for certain whether it would resolve Social Security's funding shortfall. However, most House Republicans clearly prefer benefit cuts to tax increases. I say that because the proposal mentions modifying the PIA formula and increasing full retirement age, both of which would amount to benefit cuts.
House Republicans in the past have proposed raising the full retirement age from 67 to 69, but that alone wouldn't solve Social Security's funding problem. Even if the full retirement age increased by two months per year starting in 2024 such that it reached 69 for workers who turn 62 in 2035, only 37% of the funding shortfall would be eliminated. That assessment comes from the Office of the Chief Actuary at the Social Security Administration.
That means House Republicans must see substantial cost savings in modifying the PIA formula because their proposal doesn't mention tax increases. In that context, there's a serious flaw in the RSC budget: It leans entirely on benefits cuts.
That's problematic because Democrats have been vocal in their opposition to benefit cuts, and a one-sided solution is highly unlikely to win approval in Congress. That said, Democrats have made the same mistake by leaning primarily on tax increases to shore up Social Security.
Ultimately, a sustainable solution will require bipartisan support, which means it will involve a combination of benefit cuts and tax increases. History supports that assumption. For example, when the Social Security program was overhauled in 1983, Congress approved changes that (1) cut benefits by gradually raising full retirement age from 65 to 67, and (2) increased taxes by gradually raising the Social Security payroll tax rate from 5.4% to 6.2%.
Those changes won Congressional approval with widespread support on both sides of the political aisle, including Joe Biden, a senator from Delaware at the time. I would expect a similar outcome this time around.
