Social Security (United States)

Social Security in the United States is a social insurance program funded through a dedicated payroll tax. It is also known as the Old Age, Survivors and Disability Insurance program (OASDI), in reference to its three components. In the calendar year 2004, it paid out almost $500 billion in benefits. http://www.ssa.gov/OACT/STATS/t4a3Outgo.html

Demographic and revenue projections

In each year since 1982, OASDI tax receipts, interest payments and other income have exceeded benefit payments and other expenditures, most recently (in 2004) by more than $150 billion. http://www.ssa.gov/OACT/STATS/table4a3.html As the "baby boomers" move out of the work force and into retirement, however, it is anticipated that expenses will come to exceed Social Security tax revenues if there are no changes in current law concerning taxes, benefits, and the retirement age.

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According to most projections, the Social Security trust fund will begin drawing on its Treasury Notes toward the end of the next decade (around 2018 or 2019), at which time the repayment of these notes will have to be financed from the general fund. At some time thereafter, variously estimated as 2042 (by the Social Security Administration) or 2052 (by the Congressional Budget Office), the Social Security Trust Fund will have exhausted the claim on general revenues that had been built up during the years of surplus. At that point, current Social Security payroll tax receipts would be sufficient to fund 73 or 78 percent of the promised benefits, according to the two respective projections. The libertarian Cato Institute estimates that the annual shortfall will reach almost $700 billion in today's dollars by 2075. http://www.socialsecurity.org/pubs/articles/art-biggs010417.html

Related Topics:
Libertarian - Cato Institute

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The Social Security Administration projects that the demographic situation will stabilize. The current accounts deficit in the Social Security system will have ended, but the system will still require higher levels of revenue as a percentage of GDP and total wages than is currently the case. Recently, this projection has come into question, because of uncertainty about changes in life expectancy. The Social Security Administration forecast, based on a slowing of the rate of increase of life expectancy, is challenged by population experts who predict more rapid increases:

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:Tables published by the government's National Center for Health Statistics show that life expectancy at birth was 47.3 years in 1900, rose to 68.2 by 1950 and reached 77.3 in 2002. The latest annual report of the Social Security trustees projects that life expectancy will increase just six years in the next seven decades, to 83 in 2075. A separate set of projections, by the Census Bureau, shows more rapid growth.

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("Social Security Underestimates Future Life Spans, Critics Say") The Census Bureau projection is that the longer life spans projected for 2075 by the Social Security Administration will be reached in 2050. Other experts, however, think that the past gains in life expectancy cannot be repeated, and add that the adverse effect on the system's finances may be partly offset if health improvements induce people to stay in the workforce longer.

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Actuarial science, of the kind used to project the future solvency of social security, is by nature inexact. The SSA actually makes three predictions: optimistic, midline, and pessimistic. The social security crisis that was developing prior to the 1983 reforms resulted from midline projections that turned out to be too optimistic. During the heavy-boom years of the '90s, the midline projections were too pessimistic. Obviously, projecting out 75 years is a significant challenge and, as such, all predictions must be taken with a grain of salt. The actual situation might be much better or much worse than predicted.

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Increased spending for Social Security will occur at the same time as increases in Medicare, as a result of the aging of the baby boomers. One projection illustrates the relationship between the two programs:

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:From 2004 to 2030, the combined spending on Social Security and Medicare is expected to rise from 7 percent of national income (gross domestic product) to 13 percent. Two-thirds of the increase occurs in Medicare. http://www.washingtonpost.com/wp-dyn/articles/A8100-2005Jan13.html

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