August 2, 2001

SOCIAL SECURITY AND THE TAX CUT:
The 75-Year Cost of the Tax Cut Is More than Twice
As Large as the Long-Term Deficit in Social Security

PDF of this factsheet
HTML of report
PDF of report
HTML of rebuttal
PDF of rebuttal

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On August 2, the Center on Budget and Policy Priorities released a report, Social Security and the Tax Cut. While some policymakers and pundits argue that the tax cut is modest and that Social Security faces an enormous financial chasm, the Center's report shows that the size of the tax cut (assuming its provisions are extended beyond their scheduled expiration dates) is more than double the long-term Social Security shortfall. The report further shows that the tax cut consumes non-Social Security resources that are likely to be essential to the development of a politically viable package of reforms to restore Social Security solvency. The report's findings include:

This holds true for plans that include individual accounts as well as plans that do not. In the absence of a transfer of funds from the non-Social Security budget, individual accounts would have to be financed by diverting revenue from the Social Security Trust Fund, which would exacerbate Social Security's projected long-term deficit. The Social Security benefit reductions that would be required as part of a plan to shift revenue from the Trust Fund to individual accounts and restore long-term solvency to the Social Security system would be so large that they would be likely to doom any such plan.

Policymakers concerned about both the long-term fiscal health of the nation and the restoration of long-term Social Security solvency, the report concludes, would do well to examine options for canceling some of the scheduled tax cuts before they take effect (particularly those targeted on households with the highest incomes) and using a portion of the resources as part of a larger package that includes changes in Social Security and restores long-term solvency to that program.