Social Security’s Looming Insolvency…deja vu all over again? - AMAC Foundation
Although he claimed he never said most of the things he said, baseball legend Yogi Bera is remembered by many for his utterance, “It’s deja vu all over again!” That phrase seems to be popping up frequently these days in conversations about the plight of Social Security, the most popular and most successful anti-poverty program in our nation’s history. The feeling of having already seen the program’s financial situation unraveling is remarkedly reminiscent in the minds of economists and historians acutely aware of the circumstances related to the late 1970s and early 1980s and the enactment of Public Law 98-21, the Social Security Amendments of 1983.
P.L. 98-21 resulted from the National Commission on Social Security Reform (the Greenspan Commission) and its intent to deal with the financial crisis that had developed over the 1975-1982 period. Benefit outlays exceeded incoming revenue during that period, causing Social Security’s financial reserves to decline to the point that the program trustees projected an inability to make benefit payments in full by mid-1983.
Based on recommendations from the bipartisan Greenspan Commission, President Reagan’s signing of P.L. 98-21 brought with it the most sweeping set of changes to Social Security up to that point. Included were a setback in the full retirement age and enactment of income taxes on benefits, along with several other significant changes intended to extend the program’s financial stability a full 75 years.
A quick calendar check would tell you that the 1983 Amendments bought an extension of solvency for Social Security expected to last until the mid- to late-2050s. So why are we now hearing that Social Security’s financial life expectancy has been shortened by 25 years? The answer lies in analyses presented by Social Security’s Chief Actuary, Steve Goss, and points to a phenomenon labeled “income dispersion” that evolved after the 1983 amendments.
In several recent public conferences, including his morning keynote address at last September’s Harkin Retirement Security Symposium, Mr. Goss noted that despite key future workforce assumptions—birth rates, mortality rates, etc.–included in developing the 1983 Amendments being “extremely accurate,” Social Security’s financial situation was worsened because of “unanticipated economic experience.” In fact, he notes, about 80% of the change in Social Security’s depletion projection—the acceleration from 2056 forward to 2033—is attributed to this.
To put this issue in everyday terms, “income dispersion” here means that while the projections used in the 1983 calculations assumed 90% of the total workforce payroll would be subject to FICA tax—the 6.2% payroll tax paid by both employer and employee—studies have shown that this projection fell substantially short. Between 1983 and 2000, the percentage of earnings assessed payroll taxes fell from 90% to 82.5%. Looked at another way, this means that 7.5% of total workforce payroll dollars—today about $12 trillion annually—unexpectedly did not produce revenue for Social Security.
With payroll taxes accounting for more than 90% of Social Security’s funding, there’s little doubt that the “income dispersion” issue will loom large in legislative efforts to address the projected insolvency, now less than a decade away. The 118th Congress will likely not develop any definitive course of corrective action, especially in a presidential election year, but optimism is growing that 2025 will see a heating up of attention to the program’s future. Focusing on the revenue side of Social Security’s financial equation will probably occupy a major portion of the stage as the array of reform proposals unfolds in Washington.