CBO Director warns: Social Security bankrupt in a decade without Congressional action.

The two trust funds that undergird the Social Security system will have a zero balance in 10 years, forcing a 25 percent reduction in payments to all beneficiaries, Phillip Swagel, director of the nonpartisan Congressional Budget Office (CBO), told lawmakers on July 12.

The Social Security program includes two trust funds, Old-Age and Survivors Insurance and Disability Insurance, which provide 25 percent of the payments made to beneficiaries. Both funds will be exhausted by 2034, according to Mr. Swagel, leaving only revenue from payroll taxes to supply benefits. That will mean an immediate 25 percent cut in benefits the day the money runs out.

“In 2034, Social Security revenues are projected to equal 75 percent of the program’s scheduled outlays, resulting in a 25 percent shortfall. Thus, CBO estimates that Social Security benefits would be reduced by 25 percent in 2034 under the payable-benefits scenario,” Mr. Swagel testified before the Senate Budget Committee on July 12.

Senators of both parties professed a desire to preserve Social Security for future generations.

Committee Chair Sheldon Whitehouse (D-R.I.) said the purpose of the hearing is to figure out “how to close that revenue gap to preserve the promise of Social Security” for future generations and current retirees who will still be alive in 2035.

“Our promise to them is one we must not break,” he said.

“Social Security is part of the social fabric of America, and every Republican agrees with that as well,” said Sen. Chuck Grassley (R-Iowa), the ranking Republican member of the panel.

The senators were divided on how to go about saving the system. While Democrats strongly favored boosting taxes on wealthy Americans, Republican leaders advocated for a range of options, including tax increases, delays to the retirement age, and benefit cuts.

Why It’s Going Broke

Social Security suffers from the same problem affecting any business or household in financial trouble: more money is being paid out than taken in. That will continue well into the future if no action is taken, according to Mr. Swagel.

“In particular, the number of people in that older age group, who are less likely to work and pay payroll taxes and who are generally eligible for Social Security benefits, grows faster than the number of people ages 25 to 54, who are more likely to work and pay payroll taxes.”

One part of the problem is that Americans are having fewer children, Mr. Swagel stated.

The fertility rate for women ages 14 to 49 was 2.02 children per woman, on average, for the 20 years leading up to 2007, when the rate peaked at 2.12. A fertility rate of 2.1 is considered the replacement rate.

The fertility rate fell to 1.67 by 2020. It’s expected to rise to 1.75 by 2030, then remain unchanged for the remainder of the century.

Also, people are living longer. “In CBO’s projections, after 2024, mortality rates decline at the average rate that they declined between 1950 and 2019,” Mr. Swagel said. That means future retirees will likely receive benefits for a longer period than their parents and grandparents did.

In 1940, which was the first year Social Security benefits were paid, the average life expectancy for Americans was 60.8 years for men and 65.2 years for women. Today, it’s 73.2 years for men and 79.1 years for women.

The Revenue Approach

Mr. Whitehouse would balance the books by increasing revenue. Specifically, his bill, the Medicare and Social Security Fair Share Act, would raise payroll taxes on wealthy Americans.

Currently, taxpayers don’t pay Social Security taxes on income beyond $160,200. Mr. Whitehouse’s proposal would apply Social Security taxes to wage, self-employment, and investment income above $400,000.

Sen. Ron Wyden (D-Ore.) said he believes that current tax laws give billionaires a “free pass” and they need to pay more in taxes.

“Billionaires often don’t report income close to $400,000 because they live off their borrowings. So this can exempt them from bureaucratic hoops like audits and exempt them from taxes for years on end,” he said.

Democrats see changing the tax code as a matter of basic fairness for working people who are taxed on nearly all of their income.

Bipartisan Problem Solving

Mr. Grassley urged Congress to take a bipartisan approach to solving the Social Security problem, following the example of President Ronald Reagan and House Speaker Tip O’Neill (D-Mass.) in the 1980s. Only when both sides work together will a solution be reached, he said.

“When you have candidates for president on the Republican side and you have a Democrati