A brief response to a comment from yesterday’s post. When CBO projects the point at which the Social Security trust fund will be “exhausted” that means there are no more securities to redeem to pay benefits that are now greater than payroll taxes flowing into Social Security, and under current law when this occurs benefits must equal taxes flowing in. Thus, if we do absolutely nothing, there will be an ~ 25% benefit cut in about 20 years (shown as 2033 in table below, 3rd column OASDI, last row). As an aside, while this would be a big cut, it also means that people saying “Social Security won’t be there at all when you retire” don’t understand the program’s finances. I don’t suggest doing nothing and allowing such a cut, but ~75% of benefits is a lot greater than 0% of benefits, obviously.
The 2012 Social Security Trustees report estimates the year at which benefits will outpace Social Security (OASDI) payroll tax receipts plus spending authority granted by IOUs (from when more payroll taxes flowed in than benefits were paid out), and the program will no longer able to pay full benefits as 2033.
However, under current law, the disability portion (DI) of Social Security and the old-age retirement portions (OASI) are separate and always have been. The date of 2033 reported in the media and shown below under OASDI, assumes that Congress will pass a law allowing the mingling of funds from the old age (OASI) and disability (DI) portions of Social Security to pay for the disability shortfall, that will come about in 2016.