COVID-19 will impact this projection, but probably not significantly
The 2020 Trustees Report, which was prepared before the onset of the COVID-19 pandemic, shows an increase in the program’s 75-year deficit from 2.78% to 3.21% of taxable payroll .What does a deficit of 3.21% of taxable payrolls mean? That figure means that if payroll taxes were raised immediately by 3.21 percentage points — roughly 1.
What does exhaustion of the trust fund mean? The exhaustion 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%.
Why did the deficit increase between 2019 and 2020? The increase is attributable to four main factors: 1) the repeal of the tax on high premium health plans, resulting in lower earnings and payroll taxes ; 2) a lower assumed total fertility rate, resulting in a higher ratio of retirees to workers; 3) lower inflation, producing an immediate reduction in earnings and payroll taxes and only a delayed reduction in benefits; and 4) a lower interest rate, which means less discounting of large future...
The program faces a manageable financing shortfall over the next 75 years, which should be addressed — once COVID-19 is under control — so that Americans will have confidence that the program will be able to pay the full amount of promised benefits.
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