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Answers to Questions From Senator Hatch About Various Options for Payroll Taxes and Social Security 1 (July 11, 2014)

handle is hein.congrec/cbo1766 and id is 1 raw text is: t JULY 1 1, 2014 Answers to Questions From Senator Hatch About Various Options for Payroll Taxes and Social Security Senator Orrin Hatch, Ranking Member of the Senate Finance Committee, asked the Congressional Budget Office (CBO) several questions about the implications of altering the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) payroll tax rates as well as the taxable maximum (the maximum amount of earnings on which those payroll taxes are imposed). This document provides CBO's answers to those questions. CBO based its answers on projections in The 2013 Long- Term Budget Outlook.' In that report, the 75-year projection period for Social Security spans 2013 to 2087. All changes to payroll tax rates and the taxable maximum analyzed in this document would begin in January 2015. CBO analyzed various options for Social Security payroll taxes and benefits under two scenarios: a scheduled-benefits scenario and a payable-benefits scenario. Benefits as calculated pursuant to the Social Security Act, regardless of the balances in the Social Security trust funds, are called scheduled benefits. However, if the trust funds were depleted, the Social Security Administration would no longer have legal authority to pay full benefits when they are due. If that occurred, annual outlays would be limited to annual revenues in the years after the exhaustion of the trust funds. (CBO projects that the trust funds, considered in combination for analytical purposes, will be exhausted in 2031 under current law.)2 Benefits thus reduced are called payable benefits. In such a case, all receipts to the trust funds would be used, and the trust fund balances would remain essentially at zero. When presenting projections of Social Security's finances, CBO generally focuses on scheduled benefits because, by definition, the system would be fully financed if only payable benefits were disbursed. With benefits as scheduled under current law, to bring the Social Security programs as a whole (OASI and DI) into actuarial balance for 75 years by increasing the payroll tax, revenues would have had to increase by 1.2 percent of gross domestic product (GDP) starting in 2013. Raise the Payroll Tax Rate to Achieve Solvency Questions: Under the existing taxable payroll base, how much would the DI payroll tax rate have to rise starting in 2015 to balance the DI trust fund over the next 75 years? Similarly, under the existing taxable payroll base, how much would the OASI tax rate have to rise starting in 2015 to balance the OASI trust fund over the next 75 years? And how much would the payroll tax rate for the combined Old-Age, Survivors, and Disability Insurance (OASDI) 1. See Congressional Budget Office, The 2013 Long- Term Budget Outlook (September 2013), www.cbo gov /publication!44521. 2. The GASI and DI programs have separate trust funds, but they are often considered together for analytical purposes. Note: Unless otherwise indicated, all years referred to in this document are calendar years.

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