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An alternate plan is an immediate increase in the payroll tax. Increasing Social Security payroll tax by 3.5 to 4 percentage points would make Social Security solvent. Another reform is means testing of Social Security and Medicare.

The current SS payroll tax is 3.6% (vice 3.5%) each for employee and employer.

The projected 75-year actuarial deficit for the combined Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds is 2.72 percent of taxable payroll, up from 2.67 percent projected in last year’s report. This deficit amounts to 21 percent of program non-interest income or 17 percent of program cost. A 0.06 percentage point increase in the OASDI actuarial deficit would have been expected if nothing had changed other than the one-year extension of the valuation period to 2087. The effects of recently enacted legislation, updated demographic data, updated economic data and assumptions further worsened the actuarial deficit, but these effects were completely offset by the favorable effects of updated programmatic data and improved methodologies.

While the combined OASDI program fails the long-range test of close actuarial balance, it does satisfy the test for short-range (ten-year) financial adequacy. The Trustees project that the combined trust fund asset reserves at the beginning of each year will exceed that year’s projected cost through 2027.

Social Security’s Disability Insurance (DI) program satisfies neither the Trustees’ long-range test of close actuarial balance nor their short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds. DI Trust Fund reserves expressed as a percent of annual cost (the trust fund ratio) declined to 85 percent at the beginning of 2013, and the Trustees project trust fund depletion in 2016, the same year projected in the last Trustees Report. DI cost has exceeded non-interest income since 2005, and the trust fund ratio has declined since peaking in 2003. While legislation is needed to address all of Social Security’s financial imbalances, the need has become most urgent with respect to the program’s DI component. Lawmakers need to act soon to avoid reduced payments to DI beneficiaries three years from now.