Could Social Security run out of money to pay benefits in 2023?
Social security is not at risk of running out of money under its current funding system. However, President Trump has proposed to eliminate social charges, which are currently its main source of funding.
If this happens and the lost income is not replaced by a transfer of funds from the general fund, the consequences would be dire. In fact, the Chief Actuary Social Security Office indicated that it would only take a few years before there was any more money available to pay for benefits.
Benefits could end for retirees by 2023
In response to a request from several Democratic senators who wanted to explore the consequences of eliminating payroll taxes, the Office of the Chief Actuary determined what would happen if payroll taxes ceased to be collected on January 1, 2021, and that the collection did not resume.
If the payroll tax money stops coming in and is not replaced by another source of funding, Social Security would still have income. This would include taxes on benefits paid by high incomes and interest income from program trust funds.
However, these sources of revenue are expected to represent less than 10% of the billions of dollars the Social Security Administration currently receives. Social Security would be forced to pay benefits out of the trust fund with very limited income, which would quickly deplete it, so it would earn even less interest income.
As a result, the Disability Benefits Trust Fund reserves would be permanently depleted by the middle of the calendar year in 2021, and the Pension Benefits Trust Fund reserves would be permanently depleted by mid-2023. .
Unfortunately, the Chief Actuary explains that while Social Security is required to pay retirement and disability benefits, it can only do so with money in the program’s trust funds. Social Security cannot simply borrow to pay for the benefits it has promised. Thus, when the trust fund was permanently depleted in 2023, the program would have “no capacity” to pay retirement benefits thereafter.
Is this a probable scenario?
To be clear, this is the consequence if the collection of social charges stops definitively and no other change in law occurs to provide an alternative source of funding.
In the past, when payroll taxes were reduced, money was diverted from the general fund to make up for losses. President Trump suggested he would follow this plan and simply pay for Social security benefits from the government’s regular budget if it obtains a reduction in its social charges.
The president does not have the legal power to end payroll taxes Where divert money from the general fund to Social Security. An act of Congress would be necessary.
It is possible, although unlikely, that the president will push through a payroll tax cut because he has made it a key election promise. It all depends on whether he is re-elected, whether there is a Republican majority in the House and Senate, and how large that majority is. But any law reducing or eliminating payroll taxes would almost certainly include provisions for another source of revenue.
While this would make Social Security more vulnerable as it would no longer have its own dedicated funding stream, it is inconceivable to imagine a change in the law where the program is deprived of income without replacement funds. This makes it very unlikely that Social Security will find itself totally strapped for cash in 2023 and be forced to stop paying benefits.
Still, the warning from the Office of the Chief Actuary about how ending payroll taxes could bankrupt Social Security in three years is worth listening to. This underscores how much of an effect tinkering with these taxes could be. Be sure to think about it when you vote in the November election and communicate your preferences to your representatives.