How Larson and Johnson plan to close Social Security’s financing gap
The Social Security’s trustees’ latest projections indicate that annual revenues will fall short of annual costs next year and never recover. The program’s trust fund can cover the shortfall for a while, but it will run out in about 15 years. The economic downturn that followed the COVID-19 pandemic will likely accelerate that schedule.
In January 2019, to close this financing gap, Representative Larson introduced the Social Security 2100 Act, which would expand Social Security. His proposal would raise benefits across the board, increase cost-of-living adjustments, expand the minimum benefit, boost the payroll tax rate, gradually eliminate the cap on earnings subject to the payroll tax, and increase the income threshold for paying taxes on benefits.
Larson’s plan is a contrast to a bill that former representative Johnson introduced when he was in Congress, the Social Security Reform Act of 2016, which would shrink Social Security. His proposal would raise the retirement age, reduce benefits for high earners, lower cost-of-living adjustments, limit benefits for higher-income spouses and children of beneficiaries, raise the minimum benefit, eliminate taxes on benefits, and boost payments for long-term beneficiaries. Although Johnson’s bill is no longer active, it is the most prominent recent Republican proposal and illustrates well a competing approach.
To better understand the effects of both proposals, we compare them with each other and with two different scenarios: what Social Security can now afford to pay and what Social Security is promising to pay.
- The “payable benefits” scenario shows what would happen if policymakers do nothing. The trust fund would run out in the mid-2030s, Social Security tax rates would stay the same, and benefits would fall after the trust fund runs out.
- The “promised benefits” scenario would continue to make payments under the current benefit formula indefinitely, even if Social Security lacked sufficient revenues to pay for them.
Our estimates use economic assumptions that predate the COVID-19 pandemic, so our projections may understate Social Security’s financial shortfall.