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55 IRET Congressional Advisory 1 (1996)

handle is hein.taxfoundation/iretcgadv0053 and id is 1 raw text is: August 30, 1996 No. 55 DEALING WITH SOCIAL SECURITY DEFICITS: LIMITED CHOICES, UNLIMITED OPPORTUNITY This advisory is the second in a series on the outlook for Social Security's retirement and disability programs (Old Age and Survivors Insurance and Disability Insurance - OASDI). The first advisory reported on the large deficits projected for the system (based on then- available numbers in the 1995 Simpl raising Trustees Report). That patch up OAS advisory explained how answer. it demographic changes and the employment. ever-increasing per capita real as 10 million. benefits promised under current law will lead the system into inevitable bankruptcy and/or wreck the federal budget. 1996 Trustees Report - same bad news The new 1996 Trustees Report, released in June, shows very little change from the 1995 projections. The retirement system is projected to begin running operating deficits - benefit payments in excess of tax revenue - in 2012, a year earlier than assumed in the previous report. The program is assumed to exhaust its trust fund in 2029, a year earlier than previously projected. The very long term deficits are projected to be very slightly lower than assumed in the last report due to minor revisions in pay DJI an woJ Ultim jobs c economic and population assumptions. By the end of the forecast period, 2070, OASDI deficits will exceed $400 billion dollars per year in inflation- adjusted 1996 dollars, equal to 5.5% of taxable payroll or nearly 2% of GDP. (See table.) Even worse, if Medicare (Part A, Hospital Insurance - HI) is factored in, the combined OASDI and HI deficits eventually approach $1.17 trillion annually, in real 1996 dollars, almost 14% of taxable payroll and over 5.5% of GDP (not shown). Limited options for dealing with the deficit There are very few options for dealing with the OASDI deficits, and they have very different economic impacts. Options for patching up the existing social security system are very limited. They consist of raising the payroll tax rate sharply, massive federal borrowing, or freezing real benefits. These options are teither bad for the economy doi tax rat toe and people when they are of d HI is not the working age, or bad for people uld devastate when they reach retirement ately, aS aly age. 'ould be lost. The only alternative that could create all winners and no losers is to replace the system, in part or, better, in whole, with a program of real private saving. Raise payroll taxes Simply raising payroll tax rates to patch up OASDI and HI is not the answer. It would devastate employment. Ultimately, as many as 10 million jobs could be lost. The current payroll tax is 15.3 percent, half paid by the worker and half paid by the employer. Of that total, 10.6 percent is permanently allocated to retirement and survivors benefits, 1.8 percent to disability insurance, and 2.9 to HI.1 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. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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