Home Federal Government Social Insecurity: 2. The Growing Social Security Funding Defecit

Social Insecurity: 2. The Growing Social Security Funding Defecit

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Social Insecurity: 2. The Growing Social Security Funding Defecit

The Social Security program is going bust.

There are four dedicated sources of revenue that fund Social Security: a) payroll taxes, b) a portion of the income taxes paid by beneficiaries on the OASDI benefits they receive, c) interest received on the two Social Security Trust Funds, and d) drawdowns on the Trust Funds.

Items a) and b) are annual revenue streams that are received by the government to make benefit payments, or “Public Revenues”. Items c) and d) are payments made by the government’s general fund and need to be financed along with all the other government expenditures or “Government Payments”.

Up until 2010, Public Revenues equaled or exceeded total OASDI benefit payments and since 2010, Government Payments have been required.

In 2015, total OASDI benefit payments were $887.7 billion, Public Revenues were $817.1 billion and the Government Payments were $70.6 billion. Since 2015, as US unemployment has declined, payroll taxes have increased a bit.  In fiscal year 2017, total OASDI benefit payments were $944.7 billion, Public revenues were $905.4 billion and Government Payments were $39.3 billion.

The problem is the baby boom generation. The growth rate of the number of people reaching the age of 62-65 exceeds the growth of the underlying labor market. Public Revenues will grow in line with payrolls, but benefit payments will grow faster.  This problem is now accelerating, as the chart below illustrates.

People Reaching the Age of 65 in the USA

Year

Number of People Per Day Reaching Age 65

2000

5,500

2005

6,000

2010

7,300

2015

9,500

2020

10,800

2025

11,700

Source: “Our Fiscal Health 2016”, Government Accountability Office

Not only is the retirement age cohort growing at an accelerating pace, life expectancy is longer as well.  So, Social Security will be paying benefits to an ever growing number of people for a longer period of time.

In 2015, there were 36 OASDI beneficiaries for every 100 workers paying payroll taxes. By 2035, this ratio is forecast to be 47 beneficiaries for every 100 workers. Our Social Security program now generates a structural deficit that will grow every year for the foreseeable future.

A ten-year forecast in the OASDI 2017 Annual Report estimates that the funding gap between Benefit Payments and Public Revenues will reach $217 billion by 2026.

Unless this program is fixed, the Disability Insurance Trust Fund will be fully depleted by 2023 and the remaining dedicated revenue sources will only be able to pay 89% of benefits due. The Old Age and Survivors’ Trust Fund will be gone by 2035 and only 77% of benefits will be covered by dedicated revenue sources.

Can you imagine getting a letter from your life insurance company saying “ Gee, were sorry, but we will only be able to pay 77% of your policy when you die”.

So, if you are now disabled or expect to be happily retired in 2035, you may be a member of the first generation of Americans since 1935 that will not have a dedicated stream of tax revenues to support the retirement payments you have already paid for.

Instead, an annual appropriation of Congress will be needed to fund 100% of benefit payments due. Feeling secure?

 

 

 

 

 

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