How Did Mortality From COVID-19 Pandemic Affect Social Security Finances?
Q: I recently read that the Social Security Trust Fund picked up an extra year of solvency. Was that due to the high mortality rate in seniors during the pandemic?
A: The Social Security Trustees recently estimated that the program would be solvent one year longer than they estimated last year. As you suspect, mortality did play a role — Social Security’s finances improved slightly due to the jump in deaths from COVID-19 when the program outlays fell. But the savings were offset when inflation boosted program outlays due to the 5.9% annual cost-of-living adjustment (COLA) in 2022 which increased long-term costs. Another high COLA is expected for 2023, which we expect will be about 9.6% as of data through July 2022.
Between January 2020 through June 2, 2022, more than 1 million older adults over the age of 64 died from COVID-19. That was almost three quarters of all deaths from the disease. The high number of deaths led the Congressional Budget Office (CBO) to lower its estimate of Social Security outlays in 2022 by $8 billion, and a total of $322 billion over the next decade from 2022 to 2031. Over the same period, higher COLAs will increase outlays by $617 billion, the CBO estimates.
The Social Security Trustees did estimate however, that the Trust Fund gained a year in solvency. The Social Security insolvency date is now projected to be 2035 instead of 2034. While mortality played a role in the improved solvency, increased program revenues play an even bigger role — including more from the taxation of Social Security benefits.
Since the start of 2021, TSCL has been concerned that significant numbers of older taxpayers may be liable for tax on their Social Security benefits for the first time during the 2023 tax season. Social Security benefits increased by 5.9% this year, a big jump in income during any typical tax season. Households that also have income from retirement savings might have drawn down more than usual to cover rising costs, due to inflation. That would boost their taxable income by even more. Those who already pay taxes on Social Security benefits, might be on the hook for a bigger tax bill next April.
In fact, based on the taxation of Social Security benefits, the Trustees clearly think that higher retiree income will spell higher tax revenues well into the future for Social Security. But those estimates are accurate only if the assumptions that Trustees make about the future pan out. Forecasts of higher tax revenues could quickly change if our economy falls into recession, layoffs climb, and payroll taxes decline. Ninety percent of Social Security’s income comes from payroll taxes revenues.
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Sources: COVID-19 deaths reported in the U.S. as of June 2, 2022 by age, Statista.com, June 24, 2022. “The Budget and Economic Outlook: 2022 to 2031”, Congressional Budget Office, May 2022. The 2022 Social Security Trustees Report, June 2, 2022.