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![handle is hein.taxfoundation/iretcgadv0099 and id is 1 raw text is: Advisor
March 31, 2000 No. 102
SOCIAL SECURITY STILL NEEDS
FIXING
The slightly improved outlook in the 2000
Social Security Trustees Report does not change
the fact that the Social
Security retirement,
disability, and Medicare pro- The slightly imj
grams still need to be fixed. 2000 Social Sec
does not change
Retirement and Disability Security retirei
Medicare progr
Recent strength in the fixed.
economy has boosted payroll
tax revenue, and increased
income and capital gains
have forced more of the elderly to pay taxes on
their Social Security benefits. As a result, the
Social Security Old Age and Survivors Insurance
and Disability Insurance programs (OASDI) are
projected to run operating
surpluses - taxes in excess of
outlays - through 2015, a [In 2037] OA
year longer than in last year's
Report. The deficit spending pyll
authority given by the will cover only
system's trust funds is the system will
expected to cover subsequent its payments oi
deficits until 2037, three years
longer than in last year's
Report. At that point, however, OASDI revenue
from payroll taxes and taxation of benefits will
rove
urIity
th e fai
nent,
.ams
SDI
and
7.3%'~
not bi
~i time
cover only 73% of benefits, and the system will not
be able to make payments on time.
Long term, the annual OASDI shortfalls are
projected to grow very large. The deficits will be
4.7 percent of taxable payroll by 2035, after the
baby boom has retired, and almost 6.2 percent of
taxable payroll by the end of the 75 year planning
period. Ultimately, either the payroll tax will have
to be boosted by 6.2 percentage points, or benefit
growth will have to be trimmed, or other tax
revenue will have to be diverted to OASDI. (Add
Medicare's projected Hospital Insurance program,
and the tax hike will have to be nearly 9.5
percentage points.)
It is not true, as some may claim, that a 1.89
percentage point hike in the payroll tax would fix
the system. The OASDI
system is sometimes
outlook in the (unfortunately) summarized
Trustees Report by its 75 year average
et that the Social annual surplus or deficit.
disability, and The 75 year balance is now
still need to be a negative 1.89 percent of
payroll, less of a shortfall
than the negative 2.07
percent of payroll in last
year's Report. In past years,
advocates of the status quo for Social Security have
claimed that the 75 year average deficit indicates
the system is not in serious trouble, and that an
immediate but (in their opinion) modest hike in the
payroll tax of about 2
percentage points would fix
revenue fr-om the system for the long term.
'axing benefits This is misleading.
of benefits, and The 75 year balance adds
e able to make together the current trust
funds, projected short-run
surpluses, and never-ending
deficits thereafter (cut off at
75 years, with a target end of period trust fund
balance), and expresses the result as a percent of
Institute for
Research on the
Economics of
Taxation
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