New paper: "The Implications of Social Security’s 'Missing Trust Fund'"

The Center for Retirement Research at Boston College has released a new Issue in Brief:

"The Implications of Social Security’s 'Missing Trust Fund'"

by Alicia H. Munnell, Wenliang Hou, and Geoffrey T. Sanzenbacher

The brief’s key findings are:

• As policymakers consider restoring balance to Social Security, understanding the reason for the shortfall is important.
• Specifically, the program’s “pay-as-you-go” approach, which dates back to the late 1930s, makes it expensive.
• Paying full benefits to Depression-era workers essentially gave away the trust fund that would have accumulated, along with the interest on those contributions.
• To make up for the missing interest, costs are higher than in a funded system.
• Little rationale, however, exists for burdening today’s workers for the long-ago decision of allowing Depression-era workers to retire with dignity.
• These additional costs could be funded more equitably through the income tax, rather than the payroll tax.

This brief is available here.