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1 1 (September 3, 2021)

handle is hein.crs/govegxf0001 and id is 1 raw text is: Social Security's Funding Shortf Overview Social Security provides monthly cashbenefits to retired or disabled workers, their family members, and family members of deceased workers. Many people of all ages have some connection to the program, including an estimated 176 million covered workers and approximately 65 million beneficiaries in 2021. The program's income and outgo are accounted for with the Social Security trustfunds. They represent funds dedicated to pay current and future Social Security benefits. In 2020, the programhad total income of $1,118 billion (93.2% from dedicated taxrevenues), total expenditures of$1,107 billion (99.0% for benefit payments), and trust fund reserves of $2.9 trillion (U.S. Treasury securities) available for future programspending. Under the 2021 intermediate as sumptions, the Social Security Board of Trustees project, with these asset reserves, the trust funds to remain solvent' until 2034 (the 2021 intermediate as sumptions reflect the trustees' understanding of Social Security at the start of 2021). That is, until 2034, the trust funds are projected to be able to pay full benefits scheduled under currentlaw on a timely basis. In 2034, however, the trustfundreserves are projected to be depleted. While the programwould continue to operate with scheduled taxrevenues, those revenues are projected to cover78% ofscheduled benefits through the end ofthe projectionperiod (2095). It is unclearhowthe U.S. Treasury would handle the p ayment of scheduled benefits under such a scenario. Social Security's projected long-range funding shortfall is driven largely by demographic factors. Declines in fertility and increases in longevity result in a lower ratio of workers to beneficiaries (projections show the ratio of workers paying into the systemto support eachbeneficiary is estimated to fall from2.7 in 2021 to 2.3 in 2033). Changes to Social Security have longbeen an issue of interestto Congress froma trust fund solvency perspective. Policy proposals to address Social Security's projected funding shortfalltypically include a combination of revenue increases and benefit adjustments. Although the process of selecting specific programchanges would likely involve intense debate in Congress,policymakers generally agree that taking legislative action sooner rather than later could mitigate the effects on workers and beneficiaries and allow people as much time as possible to adjust to the changes. How Is Social Security Financed? Social Security is a self-financing program. Of its total income, 93.2% is from dedicatedtaxrevenues: (1)payroll taxes paid by employers, employees, and self-employed individuals; and (2) federal income taxes paid by about half of beneficiaries on a portion of theirbenefits. The program also receives interestincome on the asset reserves held by the Social Security trust funds (6.8%) and a small amount Updated September 3,2021 fall (less than 1%)ofotherincome (includingreimbursements from the U.S. Treasury's generalfund). Social Security coverage is nearly universal, with an estimated 94% of all workers participating in the systemin 2021. The Social Security payrolltaxrate is 12.4%, divided evenly between the worker and the employer; the taxis applied to the worker's earnings up to an annuallimit ($142,800 in 2021). Any covered earnings above the annual limit are not subject to the Social Securitypayroll taxand are not counted in the worker's benefit computation. Social Security benefits are intended to replace part of a worker's earnings. As such, aworker's benefit is based on his orher career-average earnings in covered employment (i.e., earnings subject to the Social Securitypayrolltax) and a progressive benefit formula that is intended to provide adequate benefit levels for workers with low career-average earnings. Issue Before Congress Over its 86-yearhistory, Social Security has collected $24.1 trillion and paid out $21.2 trillion, leaving trust fund asset reserves of $2.9 trillion. Projections show that Social Security will be unable to pay scheduled benefits in full and on time starting in 2034, primarily due to demographic factors. What ks Social Security's Projected F inancial Outdook? For many years, Social Security collected more tax revenues than needed to pay benefits, resulting in the accumulation of trust fund asset reserves (held in the form of interest-bearing U.S. Treasury securities) available for future programspending. Starting in 2010, however, Social Security's total expenditures beganto exceed noninterest income (i.e., cash-flow deficits emerged), requiring the programto draw on trustfundreserves topay scheduled benefits. The trustees project that Social Security will continue to run cash-flow deficits throughout the 75-year projection period (2021-2095) and that annual cash-flow deficits will grow markedly over time. For example, the program's cash-flow deficit was $65 billion in 2020 and is projected tobe $449 billion in 2033 (constant2021 dollars). (2021 Social Security Trustees Report, intermediate assumptions.) In 2021, Social Security's costis projectedto exceed total income (i.e., taxrevenues plus interest income). Trustfund reserves are projectedto decline steadily fromtheirpeakof $2.9 trillion to zero in 2034. Following the depletionof trust fundreserves, scheduled taxrevenues are projected to be sufficient to pay 78% of scheduledbenefits initially, declining to 74% by 2095.

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