For Immediate Release: Friday, August 6, 2010
Contact: Phoebe Silag or Karen Conner, email@example.com 202-775-8810
Social Security is financially sound through 2036, and modest increases in revenue can close the shortfall expected in 2037, a new analysis by Economic Policy Institute researchers Lawrence Mishel and Monique Morrissey and former Chief Actuary of Social Security Harry C. Ballantyne finds. Furthermore, Social Security cannot add to public debt over the long term because it is prohibited from borrowing.
The analysis, Social Security and the Federal Deficit: Not cause and effect, explains that Congress made reforms to the Social Security system in 1983, when Ballantyne was Chief Actuary, that fully accounted for both Baby Boomer retirements and increases in life expectancy. The long-term finances of Social Security do need to be shored up due to a range of economic factors, including growing wage inequality, but this can be accomplished with an increase in revenues equal to 0.6% of GDP.
The reforms implemented during Ballantyne’s tenure included raising taxes and cutting benefits in order to build up a large trust fund. Social Security can only spend what it receives in tax revenues and what has accumulated in its trust fund from past surpluses and interest earnings. In 2025, Social Security will need to begin to draw on the principal of the trust fund to pay benefits. If no changes are made, the trust fund will be exhausted around 2037.
In the worst case scenario, if Congress does not act to address Social Security’s long-term budget shortfall before the trust fund is depleted, Social Security benefits would have to be cut by 22%. Social Security would not be able to make up the shortfall by borrowing because the program is prohibited from doing so by law.
Finally, the report outlines the reasons why raising the retirement age is not the best solution to resolving Social Security’s fiscal challenges. Increasing the retirement age would affect all workers, while improvements in life expectancy have been concentrated among higher levels of education and income.