The 2020 Social Security and Medicare trustees report, published Wednesday, showed that Social Security could pay full scheduled benefits until 2035, and that the Medicare's Hospital Insurance Trust Fund would be depleted earlier, in 2026.
The report mirrored the numbers from last year – but crucially did not reflect the effects of the current coronavirus crisis.
Now an analysis from the Bipartisan Policy Center gives a hint at just how much the current downturn could bite into Social Security.
The analysis found that if the economic fallout from the pandemic is similar to the 2007-09 recession, the program’s two trust funds could be depleted much earlier: in the “coming decade.”
Once the funds are depleted – and if nothing is done to shore up the program – the benefit payouts would not be cut entirely, but would need to be reduced.
“These projections reflect a substantial further deterioration in the finances of a program that was already facing a large mismatch between income and outlays,” the report’s authors, Shai Akabas and Nicko Gladstone, wrote.
Social Security is made up of two funds: there is an Old-Age and Survivor Insurance trust fund and a Disability Insurance fund. The BPC estimates that the old-age fund’s “depletion date” would move up from 2034 to 2029.
The disability fund would be hit harder: depletion would move from 2065 to 2024. The report notes that it could be depleted “during the next presidential term.”
The authors described their findings as a preliminary analysis and said a more detailed report would be released soon.
U.S. officials also told Reuters on Wednesday that revenue losses from the coronavirus would likely accelerate the depletion of Social Security reserves. The Committee for a Responsible Federal Budget also released an analysis of the Trustees' Report and they note that “Social Security Disability Insurance is likely to be insolvent decades earlier than the Trustees project – perhaps in the 2020s – and the old age program several years earlier than projected.”
How an economic downturn hits Social Security
Between 2008 and 2012, according to the Bipartisan Policy Center, the recession moved Social Security’s depletion date up by nearly a decade. In 2008, the program was scheduled to be fully funded until 2041. By 2012, that projection was down to 2033.
The economic boom of the last decade helped shore up the retirement program’s solvency up to 2035 but an economic downturn likely hits all three funding sources for the program: payroll taxes, taxes on certain benefits, and interest earned.
As the BPC post notes, the current crisis could increase costs as well. When workers lose their jobs, the claims for Social Security Disability Insurance could rise and more older workers could also retire and begin to claim benefits.
Last week, the International Monetary Fund released its own report saying that the worldwide effects of the novel coronavirus will likely be worse than the Great Recession of the late 2000s. They are warning it could be the worst downturn since the Great Depression in the 1930s.
Calls for action in Congress
Even before analysis was released, the trustees report had left many lawmakers concerned.
A range of politicians – including bipartisan leaders from both the Senate Finance Committee and the House Ways and Means committee – released statements saying that the report underscored the need for Congress to act to shore up the program for future generations.
Treasury Secretary Steven Mnuchin said in a statement that his department was “committed to strengthening the financial outlook of these programs, which will benefit from the long term, pro-growth economic policies enacted by this administration.”
At the same time, the Trump administration is pushing for a payroll tax cut as part of Washington’s further response to the crisis which would – at least temporarily – cut into Social Security’s primary funding source.
There has also been a Democratic push, led by Senators Charles Schumer, Elizabeth Warren and Ron Wyden, to temporarily increase Social Security benefits by $200 a month for the duration of the coronavirus crisis. The release does not discuss how those additional costs would be covered. Presumptive Democratic nominee Joe Biden has endorsed the idea.
President Trump, while discussing the coronavirus response, recently said, “I will always protect your Social Security, your Medicare, and your Medicaid.”
Ben Werschkul is a producer for Yahoo Finance in Washington, DC.