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AARP says Social Security funding gap could narrow if taxable payroll tracks GDP

AARP says Social Security funding gap could narrow if taxable payroll tracks GDP
AARP eyes Social Security fix

Long-term pressure on Social Security reflects not only an aging population but also a decades-long decline in taxable payroll as a share of the U.S. economy. New AARP Public Policy Institute research says the program could pay full benefits until 2059 if payroll tax revenues had kept pace with gross domestic product.

Highlights

  • Social Security's taxable payroll has declined as a share of GDP over four decades, intensifying funding strain beyond demographic pressures, according to AARP Public Policy Institute.
  • If payroll taxes had matched GDP growth, Social Security could pay full benefits until 2059—25 years beyond current depletion projections.
  • Social Security trustees project combined trust funds may be depleted in Q3 2034, at which point only 83% of scheduled benefits will be payable without Congressional action.

Report links funding strain to payroll trends

As reported by CNBC, citing AARP Public Policy Institute, Social Security's taxable payroll has fallen as a share of gross domestic product over the past four decades, weakening the program's revenue base beyond the effects of demographic aging alone.

The research says that if payroll taxes had kept up with GDP, Social Security would be able to pay full benefits until 2059, or 25 years longer than current projections indicate. Richard Johnson, vice president of financial security at the AARP Public Policy Institute, says the program's finances have weakened because the economy has changed while its revenue system has not.

Johnson says during a Tuesday press briefing that the answer is not to cut earned benefits but to rebuild the revenue supporting them. He says lawmakers could consider changes that require higher-income taxpayers to contribute more while shielding low- and moderate-income taxpayers.

Trust fund outlook sharpens policy debate

Social Security's trustees project in June that the combined retirement and disability trust funds may be depleted in the third quarter of 2034. If Congress does not act, 83% of scheduled benefits will be payable at that point, according to the trustees' projections.

AARP says rising income inequality has reduced the share of earnings covered by the payroll tax cap, which lawmakers originally expected to cover 90% of earnings on an ongoing basis. The group also points to population aging as a continuing challenge, with the worker-to-beneficiary ratio falling from 3.4 to 2.4 between 2000 and 2030.

As we previously wrote, U.S. deficits and 5% Treasury yields were deepening fiscal pressure as borrowing costs rose.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.

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