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![handle is hein.taxfoundation/iretcgadv0052 and id is 1 raw text is: IRET6
May 14, 1996 No. 54
SOCIAL SECURITY RETIREMENT
AND DISABILITY PROGRAMS NEED
HELP NOW
The 1996 Social Security Trustees Report, to be
released in early June, will reaffirm that the
retirement and disability portions of the Social
Security System -- Old Age and Survivors
Insurance (OASI) and Disability Insurance (DI) --
are headed for serious trouble.
almost nothing left for defense and other
discretionary federal spending. (See chart.) Soon
after 2020, entitlement spending alone will exceed
federal revenues. The deficits in the major
entitlement programs (outlays in excess of payroll
tax receipts and Medicare premiums) will drive up
the national debt, and the compounding debt will
cause interest outlays to explode. Federal deficits
will rise from about 2.3% of GDP in 1995 to almost
19% of GDP by 2030. The deficits would absorb
every penny of gross national saving, which has
been running between 14% and 19% of GDP in
recent years. Virtually all domestic saving would be
required simply to service the federal debt. Nothing
would be left for maintaining or increasing the stock
of capital.
Clearly, entitlement spending must be
controlled. The sooner that steps are taken to deal
with soaring entitlement spending, the better. The
longer changes are delayed, the more wrenching
they will be.
This Advisory is to remind the
Congress that the retirement
and disability programs are
broken, and that they require
attention now, not at the last
minute when they are about to
begin delaying benefit checks.
Future advisories will show
why patching up the current
system is not feasible and will
The [Social Secutri
and disability pros
broken, and ... req
now, not ait the lasi
they are about to I
benefit checks.
suggest ways of replacing Social Security with real
saving by individuals for their own retirement and
with private disability insurance.
Unchecked growth of entitlement spending will
trigger a budget disaster as the baby boom
generation retires. Congressional Budget Office
projections presented by the Bipartisan Commission
on Entitlements and Tax Reform (Final Report,
Washington, DC, January, 1995) show a very
serious situation. Even if discretionary spending is
strictly controlled, federal deficits will rise sharply.
By 2010, rising entitlement outlays and interest on
the debt will absorb nearly all federal revenue, with
1y] retirement
Social Security's impact on
the economy
itire attention Social Security is already
minute when adversely affecting
demployment, saving, and
e elayig investment. Rising payroll
taxes have discouraged effort,
reduced the supply of labor,
and driven up labor costs.
Higher labor costs force businesses to hire fewer
people than they would otherwise employ. A good
rule of thumb is that each percentage point increase
in the payroll tax reduces employment by about
one-third to one-half percentage point. Labor
intensive businesses are hit the hardest by the tax,
but all U.S. businesses suffer from the higher labor
costs in the highly competitive world economy.
The amount of income subject to the payroll tax
has risen from $3,000 in the 1940s to $62,700 in
1996. The combined OASDI payroll tax rate for
employers and employees has climbed from 2% of
payroll in the 1940s to 12.4% today. The rate is
Institute for
Research on the
Economics of
Taxation
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
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