NCPA - National Center for Policy Analysis

Trust Fund Deficits Will Require Income Tax Revenue

April 15, 2002

Although the Social Security trustees' annual report extends for three years its projection of when the trust fund will be exhausted -- from 2038 to 2041 -- that is irrelevant, says economist Tom Saving.

The real issue is where we will get the resources that must be transferred to Social Security and Medicare beginning as early as 2010, when the baby boomers start to retire.

  • Last year, Social Security and Medicare (including both hospital insurance and supplementary medical insurance) contributed (from payroll tax revenue) to the Treasury a net amount equal to about 2.5 percent of all federal income tax revenue.
  • By 2004, that net contribution will rise to more than 3 percent -- but after that, it will begin a rapid decline, and by 2010, the programs will become a drain on the Treasury.
  • By 2015, the programs will require a transfer from the Treasury of almost 7 percent of all federal income tax revenue, a transfer of 35 percent by 2030 and a transfer of 44 percent by 2040.

In just a few years, Social Security and Medicare will go from being a net revenue source to a major drain on the Treasury. To maintain the status quo, the government will have to shift significant portions of income tax revenue away from general revenue projects such as education and national defense to meet its obligations to retirees.

Source: Thomas Saving (NCPA Senior Fellow; Director, Private Enterprise Research Center at Texas A & M University), "Trustees didn't give Social Security a clean bill," Dallas Morning News, April 14, 2002.

 

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