LDN - Business

Column-Social Security doomsayers are wrong again, but reform choices loom

[September 16, 2021]By Mark Miller

(Reuters) - The U.S. government recently released its annual report on the health of Social Security. Not surprisingly, that was met with a slew of doomsday forecasts from pundits and media.

Social Security will soon be insolvent! Insolvency is coming years earlier than we thought! Benefit cuts are a real possibility!

These panicky predictions appear every year when the trustees overseeing Social Security issue their report on the financial health of the program, and this year was no exception. The pandemic-induced recession of 2020 added a new twist, since many forecasters were predicting before the report was released that COVID-19 would dramatically worsen the financial outlook for Social Security.

Guess what: it didn’t happen. But the U.S. Congress does need to address a long-range imbalance in Social Security finances - and lawmakers should expand benefits in a targeted way while they are at it.

Last year, the dramatic fall in employment and earnings in the second quarter of 2020 did translate into lower Federal Insurance Contributions Act (FICA) revenue paid into the system by workers and employers - temporarily. And the pandemic did worsen the financial health of Social Security, but just a bit. The trustees project that the reserves of the combined Social Security retirement and disability trust funds will be depleted in 2034 - one year earlier than predicted a year ago.

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People wait to be called upon at a Social Security office in New York City, U.S., July 16, 2018. REUTERS/Brendan McDermid

“We were all expecting substantially lower earnings and employment throughout the year,” said Stephen C. Goss, chief actuary of the Social Security Administration, during a webinar discussion of the trustee report convened last week by the National Academy of Social Insurance. “In fact, the earnings and employment came back more rapidly than we and others had anticipated.”

The causes of the long-range imbalance in Social Security have long been clear: rising benefit outlays expenses as the nation ages, and a dramatic decline in birth rates, which translates into fewer workers paying into the system over time.

Congress has known about these problems since the early 1990s. But the situation has been a stalemate because there has been no consensus about how to address the problem, especially with the rising political polarization of the last decade. Conservatives have pushed for a higher full-retirement age - which effectively cuts benefits by raising the bar for attaining your full benefit - while progressives developed a consensus over the past decade around new revenue and expansion.

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