Other Entitlements Topics:

Social Security

The Issue

Social Security, the largest federal government program, marked its 80th anniversary in 2015. It consists of two main programs: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI). The federal government spent nearly $900 billion on Social Security benefits in 2015. Together, Social Security’s programs account for nearly one-quarter of all federal spending in 2015.

Social Security is the largest among the three major entitlement programs. Together, Social Security, Medicare, Medicaid, and related health spending consume more than half of the entire federal budget. Moreover, these programs are the main drivers of federal spending and debt over the next decade. Eighty-five percent of the projected growth in spending through 2024 is due to the major entitlement programs and interest on the debt. In terms of the size of the economy, Social Security spending is projected to grow from 4.9 percent of gross domestic product (GDP) in 2015 to 6.2 percent of GDP 25 years from now.

This spending tsunami is a major threat to limited government because entitlement spending increases automatically each year based on each program’s governing laws. Entitlements get the first call on tax revenues; other priorities, such as defense or national security, must make due with an increasingly smaller share of whatever remains. This supposedly “locked in” spending is steadily undermining other national priorities and threatens the economic future of younger generations. A child born in 2016 faces an individual debt burden of nearly $58,000 in terms of her share of the national debt, as well as $155,000 in unfunded entitlement obligations from Social Security and Medicare.

Decades ago, Washington politicians promised baby boomers health and retirement benefits that are no longer affordable, because the programs were not designed in a way that actually protected taxpayers from their ever-increasing costs. Americans now face the consequences of this neglect. The national debt held by the public is three-quarters the size of the nation’s economic product and is growing rapidly. The Congressional Budget Office estimates that without fiscal restraint, public debt could exceed 100 percent of GDP by 2030, within less than one generation. Medicare and Social Security face almost $50 trillion in long-term unfunded obligations ($36.8 trillion for Medicare under the alternative scenario and $13.5 trillion for Social Security).


Since 2010, Social Security has taken in less money from payroll tax revenues and the taxation of benefits than it pays out in benefits, generating cash-flow deficits. The 2014 cash-flow deficit was $39 billion for OASI and $30.2 billion for DI. Although the OASI and DI trust funds are not yet insolvent, there is no real money sitting in them—just a bunch of IOUs. Thus, when the Social Security Administration pays out benefits that exceed its payroll tax collections, the government converts those trust fund IOUs to new public debt. Over the next 10 years, Social Security’s cash-flow deficits will amount to $1.1 trillion, according to the trustees’ intermediate assumptions.

The disability program suffers from a host of more complex problems. Among SSDI’s many problems are: inefficient, complicated, and sometimes detrimental adjudication procedures; outdated rules and definitions; excessive wait times for a disability determination or appeal; non-existent or ineffective recovery and return-to-work assistance; work disincentives; lack of effective continuing disability reviews; and extensive fraud and abuse. Comprehensive SSDI reform should not only establish long-term solvency, but also correct the program’s many flaws and inefficiencies to better serve disabled individuals by emphasizing recovery over dependency and focusing benefits on poverty prevention rather than income replacement.

The moral challenge created by entitlement spending is undermining the democratic system as more Americans become dependent on the government and other priorities are automatically preempted. Policymakers need to transform the entitlement programs away from unaffordable social insurance benefits for everyone regardless of need toward a real insurance model that provides a durable safety net for seniors, the disabled, and their families without bankrupting younger generations. Individuals must also provide for more of their foreseeable retirement and potential disability needs through personal savings and insurance. These steps will ensure a fiscally sustainable future and better stewardship for younger generations.



Protect Americans from Tax Hikes. Many opponents of fundamental entitlement reform claim that raising taxes is a feasible approach to solving the entitlement crisis. This assessment is simply wrong. Projected deficits are large and growing, and raising taxes to pay for this spending would require doubling tax rates even for the lowest income brackets. Such a policy would deal a devastating blow to the economy. The long-term obligations from entitlements require more than modest changes in the current system. The system should provide a durable safety net for today’s Americans while preserving the same opportunity and economic freedom they enjoyed for their children and grandchildren.

Restore Fiscal Responsibility by Adopting a Spending Cap. In order to motivate lawmakers to tackle entitlement reform, one promising approach would include all non-interest budget authority under one spending cap. This cap would include all discretionary and mandatory spending, except interest on the debt. Interest on the debt would be excluded because it depends in part on interest rates, inflation, and the maturity and structure of outstanding securities—factors largely outside Congress’s control. Lawmakers should adopt a statutory spending cap that encompasses all non-interest outlays and achieves budget balance, given current projections about the economy, revenues, and interest costs, by the end of the decade. Spending would then be capped at a level that maintains balance, allowing for certain annual adjustments. In the long run, during periods of normal economic activity and absent exigent national security demands, the spending cap should grow no faster than the U.S. population and inflation, similar to fiscal rules currently in place in many U.S. states. The cap should bind more stringently when debt or deficits exceed specific targets. Debt below 60 percent of GDP and deficits below 2 percent of GDP are commonly accepted as fiscally stable by a wide range of economists. Enforcement by sequestration would be necessary for such a spending cap to be effective at motivating lawmakers to adopt spending reforms that eliminate structural deficits in the U.S. budget.


Put Entitlement Spending on a Budget. Social Security, Medicare, and Medicaid are not subject to annual debate in Congress as part of the federal budget process. As the baby-boomer generation becomes eligible for Medicare and Social Security and Medicaid expands under Obamacare, costs are projected to increase to alarmingly high levels. Congress should set a 30-year budget for each major entitlement, with an obligation to adjust the programs as necessary to keep them within budget and protected from insolvency while ensuring that low-income Americans are protected from poverty. Congress should also reveal the projected cost of any proposed policy or funding level for each significant federal program over a long-term horizon of 75 years so that lawmakers avert mounting long-term challenges.


Fix Social Security’s Cost-of-Living Adjustment. Social Security’s cost-of-living adjustment (COLA) is based on an outdated measure of changes in the cost of living that fails to account for how people react to changes in prices. Lawmakers should index Social Security’s COLA to the chained consumer price index (CPI), which acknowledges that people choose less expensive and different goods and services in response to changes in prices. This would more accurately protect the value of benefits against changes in the cost of living while improving Social Security’s finances.

Raise the Early and Full Retirement Ages. Since 1950, life expectancy at birth in the United States has increased by more than 10 years, while life expectancy at age 65 has increased by more than five years. At the same time, work in the United States has become less physically demanding and individuals have become healthier. Yet Social Security’s full retirement age will gradually increase by only two years—to 67—by 2027, and the early retirement age has not increased at all. Social Security’s retirement age serves as an implicit guideline for actual retirement, as nearly two-thirds of eligible workers choose to receive Social Security benefits between the early and full retirement age. For Social Security, this means greater financial strain, and for the economy, it means a smaller workforce, lower economic growth, less retirement security, and lower revenue. Lawmakers should gradually and predictably increase the early and full retirement ages to 65 and 70, and then index both to increases in life expectancy.

Restore Social Security to Its Original Purpose of Poverty Protection Through an Anti-Poverty Benefit. Congress should put Social Security benefits on a schedule to gradually arrive at a flat payment structure for eligible beneficiaries. This flat benefit payment should be sufficient to keep eligible seniors out of poverty throughout their retirement, and the benefit should be limited to those who need it.

Reduce Taxes to Enable Greater Personal Savings. Coupled with tax reform that eliminates the payroll tax, a flat, anti-poverty benefit targeted at those who need it would limit Social Security’s role to real insurance and ease the future tax burden on American workers.

Lower payroll taxes would enable more Americans to accrue personal savings in private retirement accounts to complement Social Security’s flat benefit and reduce Americans’ reliance on government in retirement. Moreover, because savings invested in the productive sectors of the economy accrue larger returns than what most Americans can expect to receive from their Social Security payroll taxes, Americans will be able to accrue larger retirement savings or save less during their working years while still maintaining current benefit levels.

Specific Disability Insurance (DI) Reforms

Adopt a Needs-Based Period of Disability. Congress should consider replacing permanent benefits and continuing disability reviews with a needs-based period of disability of one to two years for individuals for whom medical improvement is expected, and of two to five years for individuals for whom medical improvement is possible. Beneficiaries for whom medical improvement is not expected would continue to be subject to continuing disability reviews, as is the case in the current system.

Implement a Flat Benefit. Replacing the current progressive benefit structure with a flat benefit that is linked to the poverty level would lift millions of disabled individuals and their families out of poverty and better accomplish SSDI’s purpose of poverty prevention. Individuals who currently receive SSDI benefits would continue to receive their same benefit checks. Those who are already disabled do not have the ability to increase their savings or to purchase private insurance, so they should not be subject to these changes in benefits. A flat benefit could be implemented relatively quickly, however, for all new SSDI applicants and beneficiaries. A predictable, flat benefit at the poverty level would also encourage those most able to, to purchase private DI coverage to supplement SSDI.

Moreover, a flat, anti-poverty benefit would eventually generate savings in excess of SSDI’s shortfalls, allowing for a reduction in payroll taxes that could be applied, in part, towards private disability insurance.

Encourage Greater Private Provision of Disability Insurance. Policymakers should consider offering employers a payroll tax credit in exchange for providing private disability coverage to their workers. Private coverage offers: a faster, fairer, and more efficient adjudication process; assistance and accommodations that can keep workers on the job and help more return to work; more effective screening and monitoring to weed out fraud and abuse; and lower costs. Extending these private-sector benefits to the public program through optional employer-provided coverage could generate significant savings for the program and provide far better outcomes for the disabled.

Eliminate Non-Medical Factors in the Determination Process. The Social Security Administration’s current medical vocational, or GRID, rules allow individuals to receive SSDI awards based on factors other than mental or physical disabilities, such as age, education, skill, and ability to speak English. These GRID rules play a large role in disability determinations as they come into play in 40 percent of all awards. These non-medical factors alone cannot cause disability. Congress should eliminate the GRID rules and rely exclusively on physical and mental factors when making disability determinations.

Facts and Figures

  • Social Security began running deficits in 2010, and its trust funds will be exhausted in the near future.
  • After Congress authorized a $150 billion transfer from Social Security’s retirement program to the DI program in the 2015 Obama–Boehner budget deal, the DI trust fund is projected to be exhausted in 2021 (instead of 2016). If policymakers fail to enact significant reforms before then, benefits would be cut by about 11 percent at the end of 2021.
  • Despite health gains and technological improvements, SSDI rolls have been rising for decades. Since 1990, the percentage of the working-age population that receives SSDI benefits more than doubled from 2.3 percent to 5.1 percent.
  • The Old-Age and Survivors Insurance trust fund is projected for exhaustion in 2035, at which point beneficiaries will see about a 23 percent cut in benefits if Congress and the President fail to enact meaningful entitlement reform soon.
  • In net-present-value terms, Social Security has promised $13.5 trillion more in benefits than it will receive in taxes over the next 75 years.
  • Under the most realistic scenario, Social Security and Medicare would need nearly $50 trillion today to fully fund benefits promised in the future. Some argue for taxing only the wealthy to raise revenues and reduce federal deficits, but covering these unfunded obligations through tax increases on high-income earners alone would be impossible.
  • Given current revenue projections, spending on Medicare, Medicaid, the Obamacare subsidy program, Social Security, and interest on the debt will consume all revenues within less than one generation. By 2033 no revenue would be left to pay for other government spending, including constitutional functions such as defense.

Selected Additional Resources

Romina Boccia, “How Social Security Works in 2014,” Heritage Foundation Backgrounder No. 2906, April 28, 2014.

Romina Boccia, “Private Disability Insurance Option Could Help Save SSDI and Improve Individual Well-being,” Heritage Foundation Backgrounder No.3037, July 20, 2015.

Romina Boccia, “Should the Retirement Age Go Up?” Heritage Foundation Commentary, October 26, 2015.

Romina Boccia, “Social Security: $39 Billion Deficit in 2014, Insolvent by 2035,” Heritage Foundation Backgrounder No. 3043, July 29, 2015.

Romina Boccia, “Social Security Disability Insurance: Benefit Offsets Encourage Work—But Achieve Little to No Savings,” Heritage Foundation Backgrounder No. 3032, July 15, 2015.

Romina Boccia, “What is Social Security Disability Insurance? An SSDI Primer,” Heritage Foundation Backgrounder No. 2994, February 19, 2015.

Rachel Greszler, “Budget Deal Kicks the Can on Disability Insurance, Robs $150 Billion from Social Security,” The Daily Signal, October 27, 2015.

Rachel Greszler, “Improving Social Security Disability Insurance with a Flat Benefit,” Heritage Foundation Backgrounder No. 3068, October 23, 2015.

Rachel Greszler, “Social Security Trustees: Disability Insurance Program Will Be Insolvent in 2016,” Heritage Foundation Backgrounder No. 3033, July 24, 2015.