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How to pay for Social Security's Missing Trust Fund?

Published online by Cambridge University Press:  11 January 2021

Alicia H. Munnell ,
Wenliang Hou  and
Geoffrey T. Sanzenbacher
Alicia H. Munnell
Affiliation:
Boston College, Center for Retirement Research, 140 Commonwealth Avenue, Hovey House, Chestnut Hill, Massachusetts, USA
Wenliang Hou*
Affiliation:
Boston College, Center for Retirement Research, 140 Commonwealth Avenue, Hovey House, Chestnut Hill, Massachusetts, USA
Geoffrey T. Sanzenbacher
Affiliation:
Department of Economics, Boston College, 140 Commonwealth Avenue, Chestnut Hill, Massachusetts, USA
*
*Corresponding author. Email: [email protected]
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Abstract

Decisions made early in Social Security's history resulted in benefits in excess of contributions for early cohorts. This approach gave away the Trust Fund and the resulting interest that could have accumulated, which has increased the size of the payroll tax required to finance the program. This paper finds that, for the Old-Age and Survivors portion of Social Security, the Missing Trust Fund of $29.5 trillion is driven by the excess benefits given to early cohorts. Should tax increases be considered to improve the program's finances, a broad tax – such as the income tax – could be appropriate since these early payments benefitted all of society.

Keywords

Distributional effectincome taxLegacy DebtMissing Trust Fundpayroll taxSocial SecurityJ11J18
Type
Article
Information
Journal of Pension Economics & Finance , Volume 21 , Issue 3 , July 2022 , pp. 344 - 358
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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