Social Security’s Unfunded Obligations Getting Worse

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Our Social Security program is running dry. Policymakers have no plan to fix it, and generations of Americans have been duped into believing it’s a good deal.

Social Security was established to prevent older Americans from living in poverty once they’re unable to work, but the program’s unchecked expansions have made that outcome anything but secure for current and future workers.


The Social Security Board of Trustees reports that the program will run out of money in 2034. That means anyone 55 or younger today won’t receive a single full benefit, and most current retirees will be subject to 23% benefit cuts — an average loss of $4,400 per year.

Preventing benefit cuts would require an immediate payroll tax increase, from 12.4% to 15.8%. That amounts to $2,300 more per year, and $10,800 in total Social Security taxes, for the median household with $68,000 in earnings. It’s also a far cry from the program’s original promise that Social Security would never take more than 6% from workers’ paychecks.

Even as Social Security’s shortfalls continued to rise, the U.S. financial outlook seriously deteriorated over just the past two years.


Policymakers must act now, and Congress has a choice.

It can make Social Security bigger—increasing taxes and increasing benefits for everyone—or make it smaller and better targeted.

The Social Security 2100 Act proposed the former route. At the Heritage Foundation, Drew Gonshorowski and I analyzed the proposal and found it would leave all income groups worse off. (The Daily Signal is the news outlet of The Heritage Foundation.)


Polling finds strong agreement—more than 80% of Republicans, Democrats, and independents alike—that a more targeted program could solve Social Security’s financial shortfalls and increase incomes and opportunities for all Americans.

The current system gives workers a raw deal. Every dollar they pay into Social Security goes immediately out the door to fund current benefits, never getting a chance to earn a positive rate of return.

In contrast, my Heritage colleagues and I found that the average worker would have three times more retirement income if they were able to keep and invest their Social Security taxes. Even the lowest-income workers would have 40% more retirement income.

They would also have something to pass on to their family members. Currently, people with shorter lives—including the 1 in 5 Black men who die between the ages of 45 and 64—can end up getting little or nothing from Social Security after paying into the program for decades.

Far better to return Social Security to its original goal of poverty prevention. Taking measures like gradually shifting to a flat benefit, slowly raising the retirement age and indexing it to life expectancy, using a more accurate inflation measure, and eliminating work disincentives would protect and improve Social Security.

The Heritage Foundation‘s Social Security model estimates that these changes would make the program solvent and allow for a roughly 20% tax cut. And adding an ownership option would give Americans more control over their own retirement incomes and let them benefit from investment returns.

The Penn Wharton Budget model projected that a smaller, better-targeted Social Security program like the one outlined above would result in an economy that is 7.3%, or $1.6 trillion, larger than with a bigger Social Security program. That translates into $10,740 more in annual income per household across the U.S.

Each year that policymakers fail to act, the costs and consequences of Social Security’s inevitable reform just become larger. Over just the last 10 years, Social Security’s unfunded obligations more than doubled, to $20.4 trillion—the equivalent of $157,000 per household.

Social Security’s solutions are straightforward, and despite the program’s fiscal imbalances, there are ways to make it better for everyone. By tackling Social Security reform now, policymakers could protect a popular program and reduce the chances of a fiscal crisis. It’s time for policymakers to get serious about getting America’s fiscal house in order.


This article was published by The Daily Signal and is reproduced with permission.


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