How Urgently is a Fix Needed for Social Security?

Charles Blahous is a public Social Security trustee.  He recently wrote a lengthy article, Is it Becoming Too Late to Fix Social Security's Finances? posted at Economics21.org, that emphasizes the necessity of acting sooner rather than later to shore up Social Security.  He points out that assuming there is plenty of time to act since the Trust Fund is not forecast to be exhausted until 2033 is a dangerous illusion that lulls too many into inaction.  If we fail to act soon, then the steps needed to right the program will be overwhelming.

He argues that the magnitude of the long run shortfall is close to 4% of the tax base (worker wages).  To put this in context, right now the tax base is taxed at the rate of 12.4% with 6.2% withheld from the employee's check and 6.2% paid by the employer.  Increasing the tax rate 4% would bring the total tax up to 16.4%.

He also compares this shortfall to the 1983 shortfall and concludes that it is about twice as severe. Moreover, he points out how politically difficult it was to agree to the changes made to fix the program at that time.  Such a degree of compromise in the current climate in Washington, D.C. seems highly improbable, in his view.

Dale Coberly responds at Business Insider to Mr. Blahous's article by arguing that such an increase (4%) isn't as mathematically implausible as it seems.  With real wages forecast to increase over time at roughly 1% per year, a 20% gain over 20 years could absorb the 4% (net real gain slightly under 16% instead of 20%).  If such an increase were implemented gradually, it might hardly be noticed.  This of course assumes the politics are overcome in order to get there from here.

I hope Mr. Blahous is incorrect about the politics and that some alignment of the stars will force the politicians to act.  However the issue is resolved it is as unlikely to be all tax increases as it is to be all cuts.  (The default solution is to cut benefits across the board around 25% in 2033.)  Simpson-Bowles had a mix of the two built in; you can view a PDF of the evaluation of the Simpson-Bowles proposal by the Office of the Chief Actuary at the Social Security Administration at a link provided in the Charles Blahous article.  I expect something along the lines of Simpson-Bowles to be closer to the eventual solution.