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On August 6, 2020, the Congressional Research Service (CRS) released its report, Social Security: Economic Growth and the Funding Shortfall.  In the report, CRS presents the: 1) current status of the Social Security trust funds; 2) projections for the factors in real economic growth; and 3) how projections for these growth factors are estimated to affect the Social Security program’s financial status.

Under current law and benefit structure, the Social Security program is estimated to pay full scheduled benefits until 2035.  If the trust funds’ asset reserves are depleted, the program’s benefit payments would depend totally on continuing tax revenues.  To avoid a funding shortfall, some policy option considerations would include: 1) increasing revenues (e.g., increase payroll taxes); and 2) decreasing benefits (e.g., increase the normal retirement age). 

The trustees demonstrated that the projected funding shortfall is partially due to demographic and economic factors.  The program’s financial health would benefit from increases that affect economic growth (such as total employment, average hours worked and productivity).  However, due to current economic (i.e., low productivity and low real wage growth) and demographic factors (i.e., population aging), it is unlikely these factors would result in real economic growth that would avoid the projected shortfall. 

The report concludes, “The trustees’ intermediate assumptions, their best estimates as to the program’s future experience, suggest that low growth is contributing to the projected financial shortfall (the trustees’ intermediate assumptions reflect their understanding of the program at the beginning of 2020 and do not reflect any potential effects of COVID-19).  Although increases in real economic growth would benefit both workers and the program as a whole, these alone would not likely result in a permanent solution to the projected financial shortfall.”

The report is available here.