The COVID-19 pandemic and resulting recession could hasten the depletion of Social Security’s trust fund reserves by four years, to 2030, if the current downturn ends up being as severe as the Great Recession. That’s according to an updated analysis published Thursday by the Bipartisan Policy Center.
The new report contrasts with the latest annual report from the trustees of Social Security, which was issued in April, and noted a 2034 depletion date. That report was based on data collected before the start of the recession, however.
Once trust funds are depleted, the system would have only the annual payroll tax revenues available to fund benefits, unless Congress takes action.
Several factors contribute to the earlier trust fund exhaustion dates found in BPC’s analysis, but chief among them is reduced revenue, especially lower payroll tax revenues due to increased joblessness, according to the brief’s authors.
“The closer these dates draw, the more drastic and unpalatable any solution that maintains the traditional financing structure of the program will have to be: Tax increases will be sharper, benefit cuts will be more severe, and the cohorts of workers who bear these changes will have less time to plan their finances accordingly,” wrote BPC’s Nicko Gladstone, research analyst, and Shai Akabas, BPC’s director of economic policy.
In September, the Congressional Budget Office weighed in with its own estimate of how the recession would affect Social Security. The CBO determined that the trust fund for retirement benefits will be exhausted during 2031, about three years earlier than the official estimate from Social Security. Of course, if the recession is worse than CBO estimates, then payroll tax revenue won’t recover as quickly and the trust fund will run out of money even earlier, the report noted.