This program has demonstrated its worth in tumultuous times

The 2022 Social Security Trustees Report, which was prepared in February when the outlook for the economy looked less uncertain, shows a slight decrease in the program’s 75-year deficit from 3.54% to 3.42% of taxable payroll (see Figure 1). The depletion date for the trust fund bounced back from 2034 to 2035.

What does a deficit of 3.42% of taxable payrolls mean? That figure means that if payroll taxes were raised immediately by 3.42 percentage points — about 1.7 percentage points each for the employee and the employer — the government would be able to pay the current package of benefits for everyone who reaches retirement age at least through 2096.

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Any package, however, that restores balance only for the next 75 years will show a deficit in the following year, as the projection period picks up a year with a large negative balance. Realistically, eliminating the 75-year shortfall should probably be viewed as the first step toward long-run solvency.

What does depletion of the trust fund mean? The depletion of the trust fund does not mean that Social Security is “bankrupt.” Payroll tax revenues keep rolling in and can cover about 75% of currently legislated benefits over the remainder of the projection period. Relying on only current tax revenues, however, means that the replacement rate — benefits relative to preretirement earnings — for the typical age-65 worker would drop by more than 25%.

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