Social Security benefits are commonly conceptualized as a support for individuals—money to help buoy Americans in retirement or when living with a disability. However, these benefits also have real effects on the businesses and governments of the communities in which these beneficiaries live. If benefits are reduced, not only will people and families face hard decisions, but states and local businesses may also see increased budgetary pressures.
Currently, Social Security trustees estimate the Social Security trust fund will exhaust in 2033. Contrary to what many may believe, the Social Security system will not close, and benefits will not disappear after that date. Instead, total benefits paid out will equal total taxes taken in from employees and employers, as well as taxes paid on a portion of benefits by some Social Security beneficiaries. Without further congressional action, these taxes are expected to cover around 85 percent of benefits, meaning recipients will see their Social Security benefits fall by about 15 percent.
To better understand how lost benefits will affect communities nationwide, I examine the ratio of total Social Security benefits to total personal income in each county. I focus exclusively on the Social Security retirement trust fund (the Disability Insurance program has a separate trust fund) and calculate total benefits in each county paid directly to retirees, their spouses, and children in 2023.
How will benefits affect community finances?
Any reduction in benefits will have real effects, not just on the lives of recipients but also on the businesses and governments in communities where that money is spent.
When benefits are reduced, households will face difficult financial decisions. About 40 percent of people ages 65 and older receive most of their income from Social Security benefits (PDF), meaning reductions could jeopardize their ability to afford daily necessities. As a result of these spending declines, businesses may also face budgetary pressure. Further, states that currently tax Social Security benefits will see lower tax revenues, potentially causing downstream effects on other programs.
Because of local population size, some communities will naturally have greater or smaller total benefit amounts. About 160 counties, about a third of which are small areas located in Texas and Nebraska, had total benefit amounts of less than $1 million in 2023. However, 17 more-populous counties had more than $500 million in retirement benefits in 2023, including Los Angeles County, California ($2.2 billion); Maricopa County, Arizona ($1.4 billion); and Cook County, Illinois ($1.3 billion).
But raw totals can hide the potential for disproportionate decreases in spending if benefits are reduced. In communities where benefits make up a greater share of total personal income, business and governments can expect people in their community to have less purchasing power if benefits are reduced, leading to less spending and less tax revenue. Nationwide, this ratio of Social Security benefits as share of total income ranges from under 0.5 percent to more than 2.0 percent, with an average of 1.1 percent across all counties.
States like Arkansas, Michigan, North Carolina, and Texas are home to counties with some of the highest ratios of Social Security retirement benefits to total incomes, reflecting the high numbers of older Americans living in these areas and likely receiving Social Security benefits.
Addressing Social Security finances is vital for communities nationwide
If Congress fails to ensure the continuing stability of the Social Security system, retirees will lose at least 15 percent of their benefits in 2033 and beyond. Congress can avoid that scenario and extend the life of the trust fund by strategically changing retirement ages, increasing taxes, or pursuing a combination of those and other measures. Urban’s Dynamic Simulation of Income Model (DYNASIM) can show how a variety of changes could affect the Social Security system.
Without federal changes, state and local policymakers will have to address the community effects of lost benefits. When the trust fund exhausts, benefit reductions will undoubtedly affect households, changing their work and consumption decisions. But what these changes would look like remains unclear. On the one hand, benefit cuts may lead to less spending and lower tax revenue, slowing business. On the other hand, some people nearing retirement age may not be able to afford to retire with lower benefits, thus working longer and buoying local job markets and economic activity.
In either case, reductions to Social Security benefits will have real effects on people, families, and their communities. As such, businesses, local policymakers, and other stakeholders, should make the case to their federal partners that addressing Social Security finances is vital for the long-term stability of the nation.
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