Social policy today 595pay them off, but the only way it can do so is through increasing taxes, cutting spending
in other areas, or additional borrowing.
The best way to understand this is to examine the numbers from the Trustees
Report on Social Security. In 2017, Old-Age, Survivors, and Disability Insurance had
$997 billion in income ($874 billion from payroll taxes, $85 billion from interest on the
trust fund, and $38 billion from taxation of Social Security benefits) and $953 billion
in expenditures. But remember, the $85 billion in interest on the trust fund is just IOUs
rather than real assets. So taxes fell $41 billion short of covering expenses ([$874 + $38]
− $953). This means that the shortfall had to be made up with general tax revenue. As
Figure 16.5 shows, the present value of the trust fund peaked at $2.8 trillion in 2017 and
will move downward when promised benefits exceed payroll tax revenue. The trust
fund runs out in 2034, at which point the Social Security system will be able to fund only
about 79 percent of its obligations.^47
Democrats and Republicans alike have misused this issue for political purposes.
Democrats criticize Republicans any time they try to reform Social Security,
claiming that the program is on strong fiscal ground—while ignoring that the need
for $2.8 trillion from general taxes over a 16-year period will further strain the system
and that a huge shortfall remains, even after generating that additional money.
Republicans argue that the system is in crisis and that privatization is the only way
out. Some Republicans suggest that Social Security will be “bankrupt” in 2034, which
is incorrect given that the system would still be able to pay about 75 percent of its
obligations. Although both sides have used the issue as demagoguery, both parties
do raise important points. Republicans are correct that the sooner we act, the better.
The system may not be in crisis today, but it will be if we don’t do anything about it
soon. Democrats are correct that the problems can be solved with relatively small
changes to benefits and taxes (the most recent Trustees Report estimates that the
75-year projected shortfall amounts to 2.84 percent of taxable payroll), but the required
changes won’t be small if we wait much longer.^48FIGURE
16.5(^20172032)
2034
2047 20622077 2092
Trust fund
reserves
(positive)Unfunded
obligation
(negative)Trust fund projected to
run out around 20342
1
0
–2
$3
–4
–6
–8
Trillions
(present
value)–11
–12
–13
–3
–1
–5
–7
–9
–14
–10
Social Security
Trust FundSince 2010, the cost of the Social
Security program has exceeded Social
Security payroll taxes, so taxes will
need to be raised to cover the trust
fund’s obligations and the program’s
ongoing expenses. What do you think
are the best solutions to address the
long-term future of Social Security?
What are the politically viable
solutions?Source: Social Security Administration,
June 2018, “The 2018 Annual Report
of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and
Federal Disability Insurance Trust Funds”
Figure II.D5.Full_17_APT_64431_ch16_572-613.indd 595 16/11/18 11:28 AM