Social Security, one of America’s most important social programs, provides benefits to approximately 66.7 million people each month, with 49.6 million being retired workers. However, the program is facing a funding obligation shortfall of $22.4 trillion through 2097, which means it won’t collect enough revenue to meet outlay obligations over the next 75 years.
The Trustees report also estimates that the asset reserves of the Old-Age and Survivors Insurance Trust Fund (OASI) could be exhausted by as early as 2033, potentially necessitating up to 23% benefits cuts for retired workers and survivor beneficiaries. The myth that Congress has stolen trillions from Social Security is not true. The program was signed into law in the mid-1930s, requiring the program’s asset reserves to be invested in special-issue bonds and certificates of indebtedness.
The government uses the money it receives from these bonds for various line items, including defense, education, and healthcare. However, no cent of this money has been “stolen” by Congress. The Social Security Administration publicly updates its portfolio of investment holdings each month, and as of July 2023, the program held $2,856,838,557,000 in asset reserves, with an average interest rate of 2.396%. The real reasons for Social Security’s struggles are tied to long-running demographic shifts.
The U.S. fertility rate has fallen to a record low, with many reasons behind fewer births, such as longer waiting times for marriage, fewer unplanned pregnancies, better access to contraceptives, and economic uncertainty. This has led to a lower worker-to-beneficiary ratio for Social Security. Net immigration into the U.S. has declined by 57% over the past 25 years, with legal immigrants tending to be younger and contributing to the labor force.
Undocumented workers contribute to Social Security via the payroll tax but are ineligible to receive a penny back in traditional benefits. Income inequality is another significant issue for Social Security, with all earned income between $0.01 and $160,200 subject to the 12.4% payroll tax. As of 2021, only 81% of earned income was being hit with the 12.4% payroll tax, meaning more earned income was “escaping” the payroll tax. Congressional inaction is also a contributing factor to the larger funding obligation shortfall for Social Security. The myth that Congress has its hand in Social Security’s cookie jar is not one of them.