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Social security funds are set to fall short by 2033. What can be done?

AYESHA RASCOE, HOST:

Thinking about your retirement? Then maybe you've been wondering, what is the future of Social Security? About nine years, according to a timetable laid out last week by the Social Security Administration's Board of Trustees. If Congress does nothing, the agency will run short of funds in 2033, and that means almost 60 million people would see their benefits automatically cut by 21%. To recap - nine more years, 60 million people, 21% cut in benefits if lawmakers don't do something. So what could they do? We're joined now by Emerson Sprick. He's an economist with the Bipartisan Policy Center's Economic Policy Program. Welcome to the show.

EMERSON SPRICK: Thank you so much for having me, Ayesha.

RASCOE: Before we get to some solutions, why is Social Security facing such a big hole? How did we get here?

SPRICK: Sure. So the Social Security program is funded with payroll tax revenues from the payroll tax on each of our paychecks. The problem is, throughout most of Social Security's history, the payroll tax revenue that the program brought in was greater than the benefit payments it paid out. And so it built up a substantial trust fund. The problem is that starting in around 2021, that relationship flipped, and the program started paying out in benefits more than it's taking in, running annual deficits that SSA projects and will continue to run in perpetuity.

RASCOE: What is the main driver? Is it that more people are just living longer past retirement age, or are there other factors?

SPRICK: The real problem is that Congress last reformed Social Security in 1983. Those reforms didn't fully anticipate the demographic challenges that we face today. Every year between 2024 and 2027, more than 4.1 million Americans are turning 65 annually. And so that places a pretty significant amount of fiscal pressure on this program. What exacerbates that pressure is that - and this is largely good news - Americans are really living longer, spending record lengths of time in retirement. And population growth, the working population, is really failing to keep up.

RASCOE: When you're thinking about fixes for Social Security, it seems like you're either going to have to cut some benefits or raise some taxes or do a bit of both, right? Walk me through the raising of the taxes, what that might look like.

SPRICK: So one lever that Congress could pull would be to increase that taxable maximum, that threshold under which income is taxed. That would generate substantially more revenue for the program.

RASCOE: OK. So like, higher earners pay taxes only on the first $168,600 of the income they receive - payroll taxes. And so you could try to raise that so they have to pay on more of that money.

SPRICK: That's exactly right. The other main lever that Congress could pull would be to increase the payroll tax rate. Currently, that rate sits at 12.4%. That's split between the employer and the employee. So Congress could raise that tax rate to 13% or 13.4%. And Congress could pull both levers at the same time.

RASCOE: And then on the cutting benefits side, I would imagine one of the stickiest things that they could do would be to raise the retirement age.

SPRICK: That's right. The problem is that lower earners have not enjoyed the same increases in life expectancy as the median earner or higher earners have. And so raising the full retirement age, while probably necessary as part of a comprehensive package, would really adversely affect the lowest earners in the U.S. economy and therefore would have to be passed alongside other provisions to make sure that those workers who really rely on Social Security most in retirement aren't hurt.

RASCOE: So what do you think it would take for lawmakers to push through new reforms?

SPRICK: I am really hoping that they surprise us all and they do not push us right up against the deadline. I think that what is going to be required is for someone to take the plunge first, and that's going to have to be, I think, a group of bipartisan lawmakers who decide that addressing this problem is more important than their individual elections.

RASCOE: That's Emerson Sprick, economist with the Economic Policy Program for the Bipartisan Policy Center. Thank you so much for joining us.

SPRICK: Thanks, Ayesha. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Ayesha Rascoe is a White House correspondent for NPR. She is currently covering her third presidential administration. Rascoe's White House coverage has included a number of high profile foreign trips, including President Trump's 2019 summit with North Korean leader Kim Jong Un in Hanoi, Vietnam, and President Obama's final NATO summit in Warsaw, Poland in 2016. As a part of the White House team, she's also a regular on the NPR Politics Podcast.