Implications of delaying US Social Security financing reform: a look at the measurement, structural and generational issues

Despite the admonitions of the trustees of the US Social Security pension system and the Social Security Advisory Board, policymakers have taken virtually no action to improve the system’s financing outlook. Financed on a pay-as-you-go (PAYGO) basis, the system has run cash flow deficits since 2010. Projections suggest the existing trust funds will be depleted by 2034. The failure to take corrective action occurred because policymakers shifted away from actively managing the evolving benefit and tax tradeoffs in the system to passively letting the benefit side of the system evolve automatically under legislation adopted in the 1970s and 1980s based on mistaken assumptions about the future. Benefits now provided exceed legislated current costs and are shifting tremendous obligations to future participants in the system. What is needed to restore equilibrium to the system’s cost-benefit balance is either (1) a return to the periodic negotiation and setting of benefits and supporting tax elements of the system or (2) the automation of benefit adjustments to keep cost rates in line with what is deemed to be acceptable. The system must be monitored to ensure a balance between expected benefits and assets. The application of the federal income tax to benefits is one way to include existing beneficiaries and flat dollar caps on annual cost-of-living adjustments, or scaled percentage limits on the adjustments could limit future growth of benefits for current retirees.