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April 1, 2005
TRUSTEES' REPORT SHOWS LITTLE OVERALL CHANGE IN SOCIAL SECURITY'S FINANCES
Key Dates and
Figures in Trustees’ Report
2017 |
Year in which benefit payments begin to exceed Social Security tax
revenues; program starts using interest on its trust fund bonds to pay benefits. |
2027 |
Year in which balances in trust fund peak; program starts redeeming bonds
in trust fund to raise additional funds needed to pay full benefits. |
2041 |
Year in which trust fund is exhausted.
Payroll tax revenue will still be sufficient to pay 74 percent of
benefits, falling gradually to 68 percent of benefits in 2079. |
0.65% |
Size of Social Security shortfall through 2079 as a share of GDP.
(CBPP estimates tax cuts will cost 2% of GDP through 2079.) |
The latest report by the Social Security trustees
is slightly more pessimistic than last year’s report about the program’s
finances over the next two decades, and slightly more optimistic about the
program’s longer-term outlook. On balance, the report shows little overall
change from last year.
- Social Security can pay 100 percent
of promised benefits until 2041. The trustees predict that the Social
Security trust fund will keep growing until 2027. At that point it will start
to shrink, as the program begins redeeming the bonds it contains to raise the
funds needed to pay full benefits. As of 2041, the trust fund will be
exhausted and Social Security will no longer be able to pay full benefits. This
projection is slightly more pessimistic than last year’s, which predicted that
the trust fund would be exhausted in 2042.
- After 2041, Social Security can pay
74 percent of promised benefits. After the trust fund is exhausted, Social
Security will continue to collect sufficient payroll taxes to pay 74 percent of
promised benefits. This projection is slightly more optimistic than last
year’s, which predicted that payroll tax revenues would be sufficient to pay 73
percent of promised benefits.
- The President’s private-accounts
proposal would cause the trust fund to become exhausted about 11 years sooner,
unless it is coupled with large benefit reductions. Shifting large amounts
of revenue out of Social Security and into private accounts, as the President
has proposed, would not help to close the Social Security shortfall and could
make the challenge greater. In the absence of any cuts in Social Security
benefits, the President’s private accounts would cause the trust fund to become
insolvent 11 years earlier, in 2030 rather than 2041.
- Over the long term, Social
Security’s shortfall is only a fraction of the cost of the Administration’s tax
cuts if they are extended. According to the trustees’
report, Social Security faces a deficit of 0.65 percent of GDP through 2079.
(The Congressional Budget Office estimates the shortfall at 0.36 percent of
GDP.) In contrast, the tax cuts enacted since 2001 are projected to cost 2
percent of GDP through 2079.
Thus, the tax cuts would
cost three times as much over the long term as the trustees’ estimate of the
Social Security shortfall, and more than five times as much over the long
term as CBO’s estimate of the Social Security shortfall.
In 1983, Congress and President
Reagan acted on recommendations made by the Greenspan Commission and
strengthened Social Security’s financial status through a combination of benefit
and revenue measures. Various combinations of modest benefit reductions and
revenue increases have now been proposed by economists Peter Diamond and Peter
Orszag, former Social Security Commissioner Robert Ball, and AARP. Such steps
could restore Social Security solvency while beginning to reduce federal
deficits and debt immediately, rather than entailing substantial new borrowing
and additional debt.
End Note:
The standard assumption used by CBO, GAO, and other organizations is
that the cost of a tax cut remains roughly constant as a share of GDP once
it is fully in effect. CBO projects that if the tax cuts enacted since 2001
are extended through 2015, their cost in 2015 will be 2 percent of GDP; we
assumed that this cost will remain constant through 2079, which appears to
be a conservative assumption.
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