A study from George Mason University's Mercatus Center highlights the potential consequences of postponing Social Security reform, particularly as the Old-Age Survivors Insurance trust fund is projected to be depleted by the end of 2032, with only 78% of benefits payable at that time.
Co-authors Veronique de Rugy and Jason Fichtner warn that failing to address this issue could lead to increased fiscal risk, prompting lawmakers to resort to additional borrowing. This could strain Treasury markets and the economy, with Social Security's annual shortfall expected to grow significantly, from $600 billion in 2033 to around $700 billion by 2036.
The Committee for a Responsible Federal Budget also identifies the looming trust fund depletion as a potential tipping point for the U.S. economy. Without reform, borrowing costs could rise, impacting private-sector investment and leading to higher interest rates for consumers.
The research suggests that if Congress does not act, the bond market may react negatively, potentially increasing the 10-year Treasury bond rate from 4% to 6.6%, and pushing 30-year fixed mortgage rates close to 9%.
However, the authors also note that proactive reform could stimulate economic growth and improve the fiscal outlook, with proposals indicating that smart changes could increase the economy's size by up to 13% by 2050 and reduce projected debt levels significantly