SOCIAL SECURITY'S BIG DEFICITS
June 7, 2004
The 2004 Social Security Trustees Report was recently released, outlining the schedule of retiree benefits through 2080. According to Dr. Stephen Entin of the Institute for Research on the Economics of Taxation (IRET), not only will low income workers have to bear more of the burden of supporting future retirees, but the predicted benefits are simply unaffordable.
Despite facing insolvency by 2018, Social Security continues to promise lavish benefits. According to Entin:
- Over time, future retirees will be paid twice the real benefits that current retirees receive.
- Some upper income working couples can expect almost $107,000 a year in real, inflation-adjusted benefits.
- Most future two-earner retired couples will receive more in government retirement benefits than the current median family income.
Some have suggested that cutting back the annual cost of living adjustment (COLA) will soften Social Security's budgetary crisis, because inflation will erode the real value of retiree benefits. Dr. Entin disagrees, saying the projected doubling of initial benefits over the planning period dwarfs the planned five percent cutbacks on COLA. Thus reexamining the initial benefit formula is a necessary first step to reform.
In addition, Entin suggests reforming the tax system as a means to boost productivity and increase real wages, so that the expected financial shortfalls can be reduced. Another policy step might include increasing immigration to lessen the ratio of workers to retirees. He says an influx of an additional 400,000 people per year would trim the projected 75 year deficit by nearly 14 percent.
Source: Stephen Entin, "Social Security Trustees Report: Demographics, Benefit Formula, Not Colas, Drive Big Deficits; Greenspan's Mistake," Institute for Research on the Economics of Taxation, March 24, 2004.
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