For more than two decades, analysts and politicians alike have known that the Social Security trust fund reserves would become depleted some time in the 2030s and have, for various reasons, delayed doing anything about it. But the era of procrastination, at least for Democrats, is over.
In 2035, according to official estimates, revenues will cover only less than 80 percent of scheduled benefits. Since Social Security benefits must not exceed current earmarked revenues and trust fund reserves, analysts and politicians alike have also known that if Congress does nothing before the trust fund reserves are depleted, such total benefits would have to be cut by 20 percent, either across the board or in complicated ways.
That was the financial situation until six months ago. Then the pandemic sparked great unemployment and decreased earnings, which effectively cut revenues from payroll taxes and changed the depletion of trust fund reserves to as soon as the late 2020s. Donald Trump, by executive order and with no endorsement from Congress, has also decided to suspend the collection of payroll taxes on workers from until the end of the year and pledged, if he wins the election, to cancel the payroll taxes.
The move would lower Social Security revenues by $150 billion more and shift the depletion of the trust fund reserves close by another half year. A future president could order deferral on the collection of all payroll taxes, further fueling the funding crisis. Were one to do so now, Social Security benefits would end in 2023. For decades, both parties have talked about the depletion of trust fund reserves and the need to do something about it. Some lawmakers have even proposed corrective bills. But for different reasons, leaders have made sure that such bills went nowhere.
Republicans, averse to raising taxes and favorable to simple arithmetic, saw that closing the funding gap without added revenues would force their members to vote for massive reductions on benefits for the most popular domestic program in the country to address an issue that was decades away, which marks a risky action for many of them.
Democrats, loath to decrease benefits, would have to vote for sizable increases in taxes that cannot now win even majority Senate support, much less survive both a certain Senate filibuster and a veto from the president. Such a vote would leave Democrats vulnerable to political attack from Republicans, which could affect swing districts.
Further, Democrats have also assumed that when the depletion of trust fund reserves becomes imminent, even several Republicans would join them reluctantly to vote for raising taxes, rather than explicitly vote for draconian cuts to benefits. This is highly dubious because large cuts to benefits can be phased in over time to avoid electoral backlash. During the transition, to be sure, Social Security would run deficits.
But Republicans, who are fast to use the prospect of budget deficits to block spending plans by Democrats, seem indifferent when advocating large regressive cuts in taxes and would likely be at ease with deficits to advance other objectives. Yet it is still hardly surprising that successive administrations and leaders with both parties have chosen to delay to a later date the difficult votes over this controversial problem.
Such new conditions mean that Democrats cannot afford to delay action to return Social Security to stable solvency. If they win for president and take control of the Senate, and retain control of the House, the failure to make Social Security a primary goal would jeopardize the survival of the most popular domestic program in the country and the most significant legislative achievement of Democrats of the last century. Social Security provides more than $1 trillion in benefits to over 64 million people a year and millions more who are their dependents. It even keeps more people out of poverty than any other federal government program.
Elevating Social Security reform to the top of legislative objectives could be difficult for Democrats, since their agenda is packed and costly, but a new president and his supporters have to stay in mind if they do not act, this critical element of the safety net in America will be only one adverse election away from the drastic cuts or even dismantlement.
Henry Aaron is a senior fellow in economic studies at Brookings Institution.