Social Security solvency boosted by economic recovery from the pandemic

Riding the recovery wave flowing throughout much of the U.S. economy, the Social Security trust fund for retirement benefits is now projected to last until 2034, one year later than previously estimated, according to a trustees’ report released Thursday by the Treasury Department.

The Social Security disability insurance fund, which pays out disability benefits, is faring even better. For the first time since 1983, it’s expected to outlast its 75-year projection period, representing a boost in the health of the fund that last year was expected to run out in 2057.

When the retirement fund runs out twelve years from now, tax revenues will be able to pay for 77 percent of the scheduled benefits, the Treasury report said, up slightly from a 76 percent projection made last year. The retirement fund pays out benefits to 65 million Americans and draws on earnings from nearly 180 million Americans.

Taken together, Social Security’s retirement and disability funds will now last until 2035, at which time continuing tax income will be able to pay for 80 percent of the funds’ scheduled commitments.

Medicare Part A, which helps pay for medical services like inpatient hospital care, will be able to pay its benefits until 2028, two years later than the last Treasury estimate.

The report noted that “the recovery of employment, earnings, and GDP [gross domestic product] from the 2020 recession has been faster and stronger than projected in last year’s report, resulting in higher payroll tax receipts and higher revenue from income taxation of Social Security benefits.”

This lines up with the Congressional Budget Office’s (CBO) latest economic outlook, which found that the budget deficit for 2022 would be $1.7 trillion less than previously expected, as pandemic-related spending falls off and revenues increase.

“Relative to the size of the economy, federal debt held by the public is projected to dip over the next two years, to 96 percent of GDP in 2023,” the CBO’s latest report said.

CBO said it projects that the federal budget deficit will “shrink to $1.0 trillion in 2022 (it was $2.8 trillion last year) and that the annual shortfall would average $1.6 trillion from 2023 to 2032. The deficit continues to decrease as a percentage of gross domestic product (GDP) next year as spending related to the coronavirus pandemic wanes, but then deficits increase, reaching 6.1 percent of GDP in 2032.”

The deficit has been greater than that six times since World War II.

“The Biden-Harris Administration is committed to protecting and strengthening Social Security and Medicare which represent promises to America’s seniors and play a vital role in our economy,” Treasury Secretary Janet Yellen said in a statement.

“This latest report shows an improvement in the financial position of Social Security and Medicare, reflecting the strong economic recovery and growth in the last year.”

Senior administration officials said on a call with reporters that the cost of living estimates they used to make their updated projections were up about 8 percent annually, nearly double what they were during the last period and in keeping with overall consumer inflation, which hit 8.3 percent in April.

The officials also said that deaths in 2021 were 18 percent higher than had been expected due to the pandemic, which diminished the number of people receiving Social Security benefits. This number roughly balanced with the decrease in people working and contributing funds to Social Security as a result of the pandemic, they said.

The improved overall outlook for the funds was due in part to some statistical changes made by the agency in addition to the overall economic recovery.

The disability incidence rate, or the number of people who qualify for disability insurance but don’t receive benefits, was revised down to 4.8 from 5.0, further boosting the long-term outlook of the fund.

Despite the slightly improved outlook, Social Security’s total cost is estimated to be higher than its total income in 2022, continuing a program deficit that began last year. The cost of the federal retirement and injury program has surpassed its non-interest income for the last 12 years.

Social Security’s overall reserve funds are predicted to shrink as a proportion of the program’s income from $2.85 billion, or 230 percent, this year to $1.25 billion, or 74 percent, in 2031.

Ways and Means Committee Democratic Rep. Danny Davis (Ill.) said during a May 17 hearing on the Social Security Administration (SSA) that the agency needs to be better funded.

“The SSA lacks the staffing to fulfill its mission and provide quality customer service, especially the need for the more vulnerable population,” he said.