GAO Warns of Social Security Cuts

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GAO Warns of Social Security Cuts

Social Security benefits would have to be cut by nearly a third in future years if changes are not made soon, says the General Accounting Office (GAO). The GAO recently examined the financial exhaustion of the Social Security Trust Fund in a report prepared for Senator Larry Craig (R-ID), Chairman of the Special Committee on Aging. To avoid cuts in benefits, the report said that payroll taxes would have to be raised 46 percent to restore financial solvency to the system.

Although Congress has received similar warnings recently, what made this report unusual was the noticeably stronger tone. With the 2004 federal deficit surging at the highest level ever, nearly $500 billion, the government is using all $164 billion of Social Security tax revenues, not needed to pay benefits, for other spending. That other spending includes almost $4 billion a month for military costs, as well as what some analysts believe could be hundreds of billions for the rebuilding of Iraq.

The report urged Congress to start making changes to the program soon, stating that within five years the first baby boomers will become eligible for Social Security, and that by 2018, Social Security taxes would be insufficient to pay currently scheduled benefits. More significantly, the report raised the question of whether the government could afford the current level of benefits in the future, stating “the defined benefit under the current Social Security system is also uncertain.”

The report concludes, “It is likely that the structural changes required to restore Social Security’s long-term viability generally will require some combination of reductions from currently scheduled benefits, revenue increases, and may include the use of some general revenue. The proposals we have examined, both this year and earlier, generally reflect this. Proposals employ possible benefit modifications within the current program structure: modifying the benefit formula, reconsidering current eligibility criteria, and reducing cost-of-living adjustments.”

Editor’s note: The 1977 changes to Social Security that ultimately led to the Social Security Notch came as a result of the then-imminent insolvency of Social Security.

Unless we act soon, history will repeat itself. While none of the proposed solutions to Social Security are likely to be popular, Congress does have other choices which could “buy time.” One of those is to return to the budgetary discipline that led to the budget surpluses of the late 1990’s. That discipline required any new federal spending to be offset by taxes or cuts in other spending.

Sources: “Social Security Reform: Analysis of a Trust Fund Exhaustion Scenario,” statement of David M. Walker, General Accounting Office, July 29, 2003, GAO-03-1038T. “Senate Criticizes White House on Iraq,” Alan Fram, The Associated Press, July 30, 2003.

November 2003