NCPA - National Center for Policy Analysis

Social Security Shortfalls Still Ahead

September 18, 2001

The slightly improved outlook in the 2001 Social Security Trustees Report did not change the fact that the Social Security retirement and disability programs still need fixing, says Stephen J. Entin, President & Executive Director of the Institute for Research on the Economics of Taxation.

Thanks largely to recent strength in the economy, the Social Security Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) programs, together referred to as OASDI, are projected to run operating surpluses through 2016, a year longer than in last year's Report.

Unfortunately, after the baby boom retires, the annual OASDI shortfalls are projected grow very large.

  • The deficit will exceed 4.5 percent of taxable payroll in 2038, and reach 6.05 percent of taxable payroll by the end of the 75-year planning period.
  • Tax revenue will only cover 67 percent of benefits in 2075.

Other findings in the report include:

  • Beginning in 2038 OASDI revenue from payroll taxes and taxing benefits will cover only 73 percent of benefits.
  • By 2038, the payroll tax rate would have to be raised by 37 percent or benefits would have to be cut by 27 percent to balance the OASDI system.
  • It is not true, as some may claim, that a hike in the payroll tax of less than 2 percentage points would fix the OASDI system -- long term, the yearly OASDI deficit will exceed 6 percent of payroll.

Ultimately, either the payroll tax will have to be boosted by more than 6 percentage points, or benefit growth will have to be trimmed, or some other tax revenue will have to be diverted to OASDI. Put another way, by 2075 the payroll tax rate would have to be raised by 49 percent or benefits would have to be cut by 33 percent to balance the OASDI system.

Source: Stephen J. Entin, "Social Security Still Needs Fixing," IRET Congressional Advisory, Institute for Research on the Economics of Taxation, Advisory No. 112, April 5, 2001.

 

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