Social Security Hocus-Pocus
April 20, 1999
Analysts say that President Clinton's plan to save Social Security is no more than an accounting trick. He would credit the system's trust fund with an additional $2.8 trillion in federal debt that he says comes from 62 percent of the projected budget surplus.
But critics say the President's own budget exposes the shoddiness of this plan: "The existence of large trust fund balances... does not, by itself, have any impact on the government's ability to pay benefits."
- Today, Social Security benefits are equal to 4.5 percent of U.S. gross domestic product -- which is projected to drift up to 4.8 percent of GDP by 2010.
- Shortly thereafter, as baby boomers begin to retire, the burden will soar -- reaching 6.9 percent of GDP by 2035.
- Raising payroll taxes is hardly an attractive option to pay for future claims, since for 74 percent of all taxpayers the payroll tax is already more burdensome than the federal income tax.
- But as Social Security's costs begin to exceed payroll tax receipts shortly after 2010, Congress and the White House will have no choice but to divert some or all of the budget surplus, hike taxes, prune spending, print money or borrow from the public to cover the shortfall.
Some analysts are pointing out that the answer to the problem may lie in boosting productivity and economic growth as the proportion of working Americans shrinks relative to those who are retired.
Source: Rudolph Penner (Urban Institute) and James Carter (U.S. Senate economist), "For Social Security, Solvency is Irrelevant," Investor's Business Daily, April 20, 1999.
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