The economic fallout of the current pandemic will likely be felt by retirees for years and possibly decades to come.
“As long as workers aren’t getting paychecks, then Social Security’s financing is going to take a hit,” said Kathleen Romig, a Social Security analyst, during an appearance in Yahoo Finance on Wednesday.
Romig, a senior policy analyst at the Center on Budget and Policy Priorities, said there will be an impact but it’s still “not clear exactly how much.” Romig appeared as part of Yahoo Finance’s ongoing partnership with the Funding our Future campaign, a group of organizations advocating for increased retirement security for Americans.
The 2020 Social Security and Medicare trustees report, which was published last week, 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 crucially did not reflect the effects of the current coronavirus crisis.
Another analysis, from the Committee for a Responsible Federal Budget, says that the pandemic could lead to insolvency in the program “several years earlier than projected.”
The Medicare Trust fund is scheduled to run out sooner, but “it is really difficult at this point to understand exactly how the crisis is going to play out” for the program, Romig said. We just “know that finances are going to be worse over the short term” for both programs.
A range of possible answers
Social Security is primarily funded through payroll taxes and the solution to the shortfall will likely come down to some combination of either higher payroll tax contributions or a reduction in benefits.
Romig says the former option – higher taxes – is the most likely. “Increasing those contributions to the system are inevitably going to be part of this,” she said. “Taxes are going to have to be on the table and that’s difficult for many members of Congress.”
One proposal in Congress, from before the crisis hit, would establish bipartisan commissions tasked with preventing insolvency for each of the major endangered federal trust funds.
Another plan, backed by many Democrats, would add payroll taxes for wages above $400,000 and increase them for everyone through a gradual increase in the contribution rate. The plan, called Social Security 2100, would also include benefit expansions.
“We can definitely come up with that,” said Romig of solving the upcoming shortfall one way or another. The question as always is when Congress will be able to act.
Ben Werschkul is a producer for Yahoo Finance in Washington, DC.