Economic Growth Won't Cure Social Security
February 4, 2000
Economist James K. Galbraith of the University of Texas claims that if higher growth rates were substituted for the Social Security Administration's projected rates, "future deficits disappear without any cuts in benefits or increases in taxes."
But claims that Social Security can be saved by faster economic growth are wrong, say Heritage Foundation experts. They say the SSA's forecasts may even be overly optimistic, and that by some measures, faster growth could even add to Social Security's problems.
Even if the inflation-adjusted growth rate of average wages over the next 75 years increases by the SSA's most optimistic forecast of 1.4 percent annually:
- Social Security's date of insolvency -- when revenues can no longer cover benefits--would be pushed back by a mere two years, from 2014 to 2016.
- There would be only a modest decrease in Social Security's deficit as a share of taxable payroll -- by 2075 Social Security's annual shortfall would equal 5.12 percent of taxable wages, compared with 6.54 percent under the SSA's intermediate scenario.
- However, faster economic growth would cause an increase in Social Security's annual shortfall after 2055 -- and by 2075, the annual deficit uwould be $629.9 billion, or $67.8 billion higher than the deficit under the SSA's intermediate projections.
Although economic growth would increase revenues, it would also cause an even larger increase in the system's benefit obligations over the long term, since benefits are loosely tied to wages.
Source: Gareth G. Davis, "Faster Economic Growth Will Not Solve The Social Security Crisis," February 2, 2000, Report No. 00-01, Heritage Center for Data Analysis, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.
Browse more articles on Tax and Spending Issues