NCPA - National Center for Policy Analysis

Payroll Tax Increases Haven't Solved Social Security Dilemma

May 6, 2004

Over twenty years ago, Alan Greenspan predicted that Social Security would soon collapse, prompting the appointment of a presidential commission, which he then chaired, to come up with ideas that would extend its solvency for 75 years.

In spite of enacting increases in the payroll tax and raising the retirement age in 1983, the system that was supposedly fixed is still in danger of collapsing. Why? Because the life expectancy of Americans has increased, according to columnist Scott Burns.

  • In 1930, the average life expectancy at birth of American males was 58, females, 62 (well below the retirement age).
  • In 1980, however, the life expectancy at birth increased to 73.7 years; between 1940 and 1980, expectancy advanced an average of 1.8 years per decade.

Social Security projections based on 75-year periods have resulted in unanticipated shortfalls since increasing life expectancy was not taken into account, says Burns.

Calculating Social Security benefits based on a more realistic "infinite horizon"-- which takes into account increased life expectancy -- Social Security and Medicare (Hospital Insurance and Part B) are expected to amount to a projected $32.1 trillion:

  • Social Security will fall short by $6.7 trillion, using the "infinite horizon" method.
  • Medicare's Hospital Insurance will fall short by $13.6 trillion, while Part B will need $11.8 trillion to remain solvent.

Source: Scott Burns, "Social Security was 'Saved,' But Not for Long," Dallas Morning News, May 4, 2004.


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