WASHINGTON—The severe economic downturn caused by the
Covid-19 pandemic last year weighed on the financial health of Social Security,
but not nearly as much as many forecasters originally feared, according to new
projections of the program’s finances.
Trustees for the Social Security trust fund in an annual
report released Tuesday said the program is expected to pay benefits that
exceed its income in 2021, the same as it anticipated last year at the outset
of the pandemic.
While the pandemic had a significant impact on the program,
the trustees said, they expect Social Security’s reserves to be depleted by
2034, only one year sooner than they estimated in their April 2020 report. Once
the reserves are exhausted, benefits would be reduced automatically unless
Congress steps in to shore up the program, which lawmakers have done
previously.
The trustees now project elevated mortality rates related to
the pandemic through 2023, and expect lower immigration and child-bearing this
year and next, compared with their 2020 estimates. They also expect the
pandemic has lowered worker productivity and thus economic output permanently.
“These alterations to near-term data and assumptions all
significantly impact the outlook of the programs,” they said in the report.
Senior administration officials also said they expect higher
inflation this year will significantly boost benefits next year, estimating
Social Security beneficiaries could see close to a 6% cost-of-living increase.
That would be the highest annual benefit increase since 2008, when rising gas
prices pushed up the cost-of-living adjustment to 5.8%, officials said.
By comparison, beneficiaries saw a 1.3% cost-of-living
adjustment in 2021, and a 1.6% adjustment in 2020.
Tuesday’s report was the first formal update from the Social
Security trustees incorporating their best estimates of the effects of the
pandemic, which triggered widespread business closures and layoffs last year as
state and local officials imposed restrictions to curb the spread of new cases.
The resulting deep recession significantly reduced payroll
tax revenue, the program’s main source of income. That loss of income was
partially offset by the fact that the virus pushed up mortality rates,
especially among older Americans who were more likely to be beneficiaries, thus
reducing near-term program costs, senior administration officials said.
Over the long term, however, it isn’t clear how the pandemic
will affect the program. It is possible that if the virus leads to the deaths
of the most vulnerable or sickest Americans, the potential beneficiaries who
are left may be healthier overall and live longer, boosting costs. On the other
hand, those who survived Covid-19 may suffer long-term health effects that lead
to earlier death or disability.
“There is an incredible amount of uncertainty,” one senior
administration official said. “We haven’t lived through a pandemic like this in
over 100 years, so we don’t know what the effects are.”
Social Security consists of two programs, one for retirees
and one for people who claim disability benefits. The program’s income comes
from tax revenue and interest from its trust fund.
In Tuesday’s report, the trustees estimated the retirement
program will be able to pay full benefits on a timely basis until 2033, one
year earlier than last year. After that, the program would have enough income
to pay about 76% of scheduled benefits unless Congress steps in to shore up the
program.
They estimated the disability fund would run out in 2057,
eight years later than projected in last year’s report, though they noted that
disability applications continued to decline last year.
Taken together, the programs would be able to pay 78% of
scheduled benefits after the trust funds are depleted in 2034.
The report also said Medicare’s hospital insurance fund
would be depleted in 2026, unchanged from last year’s report, as program costs
continue to exceed the trust fund’s income.
The costs of Medicare and Social Security are projected to
rise substantially as a share of the economy over the next two decades, as a
wave of retiring baby boomers boosts the number of beneficiaries, and lower
birth rates over the past few decades weigh on employment growth and economic
output.
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