NCPA - National Center for Policy Analysis

Sustainable Solvency

February 13, 2003

Social Security's long-term financing problem is larger than current estimates suggest. This is overlooked in proposals to achieve trust fund solvency over the next 75 years through benefit cuts or tax increases. With such fixes, in the 76th and subsequent years the program would still be financially unsustainable.

  • A payroll tax increase of approximately 2 percent or a 31 percent cut in benefits would achieve trust fund solvency over the next 75 years, according to Social Security actuaries.
  • The program would not remain solvent for long, since Social Security's fiscal imbalance would worsen in the 76th, 77th and subsequent years.

Long-term sustainability requires allowing workers to invest some of their payroll taxes in personal accounts that would provide some of their retirement benefits, as President Bush's Commission to Strengthen Social Security recommended.

  • By 2075, the commission's model would require about 40 percent less cash than two other benchmarks -- raising taxes or reducing benefits.
  • The share of the economy devoted to retiree payments from the Social Security system would be 20 percent lower under the commission plan than raising taxes; it would be roughly the same as reducing benefits.
  • The commission's plan would require some funds from general revenue for about three decades, but thereafter would fund benefits with the existing payroll tax rate and accumulated balances in personal accounts.

At the end of 75 years, the ratio of payroll tax income to benefit payments would be increasing under the commission plan, whereas the other alternatives would require additional tax increases or benefit cuts.

Source: David M. Walker, Comptroller General of the United States, Report to the Chairman, Senate Special Committee on Aging, U.S. Senate, "Social Security Reform: Analysis of Reform Models Developed by the President's Commission to Strengthen Social Security," GAO-03-310, January 2003, General Accounting Office, Washington, D.C.

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