2008 OASDI Trustees Report

 

E. CONCLUSION

Under current law the cost of Social Security will soon begin to increase faster than the program’s income because of the aging of the baby-boom generation, expected continuing low fertility (compared to the baby-boom period), and increasing life expectancy. Based on the Trustees’ best estimate, program cost will exceed tax revenues starting in 2017 and throughout the remainder of the 75-year projection period. Social Security’s combined trust funds are projected to allow full payment of scheduled benefits until they become exhausted in 2041. At that time annual tax income to the trust funds is projected to equal about 78 percent of program costs. Separately, the OASI and DI funds are projected to have sufficient funds to pay full benefits on time until 2042 and 2025, respectively. By 2082, annual tax income is pro­jected to be about 75 percent as large as the annual cost of the OASDI pro­gram.

Over the full 75-year projection period the actuarial deficit estimated for the combined trust funds is 1.70 percent of taxable payroll—0.26 percentage point smaller than the 1.95 percent deficit projected in last year’s report. This deficit indicates that financial adequacy of the program for the next 75 years could be restored if increases were made equivalent to immediately and per­manently increasing the Social Security payroll tax from its current level of 12.4 percent (for employees and employers combined) to 14.10 percent. Alternatively, changes could be made equivalent to reducing all current and future benefits by about 11.5 percent. Other ways of reducing the deficit include making transfers from general revenues or adopting some combina­tion of approaches.

If no action were taken until the combined trust funds become exhausted in 2041, then the effects of changes would be more concentrated on fewer years and fewer cohorts:

•	For example, payroll taxes could be raised to finance scheduled benefits fully in every year starting in 2041. In this case, the payroll tax would be increased to 15.94 percent at the point of trust fund exhaustion in 2041 and continue rising to 16.60 percent in 2082.

•	Similarly, benefits could be reduced to the level that is payable with scheduled tax rates in each year beginning in 2041. Under this scenario, benefits would be reduced 22 percent at the point of trust fund exhaus­tion in 2041, with reductions reaching 25 percent in 2082.

Either of these examples would eliminate the shortfall for the 75-year period as a whole by specifically eliminating annual deficits after trust fund exhaus­tion. Because of the increasing average age of the population (due to expected improvement in life expectancy and continued low birth rates), Social Security’s annual cost will very likely continue to grow faster than scheduled tax revenues after 2082. As a result, ensuring solvency of the sys­tem beyond 2082 would likely require further changes beyond those expected to be needed for 2082.

The projected trust fund deficits should be addressed in a timely way to allow for a gradual phasing in of the necessary changes and to provide advance notice to workers. Making adjustments sooner will allow them to be spread over more generations. In 2008, Social Security plays a critical role in the lives of 50 million beneficiaries and 164 million covered workers, and their families. With informed discussion, creative thinking, and timely legis­lative action, present and future Congresses and Presidents can ensure that Social Security continues to protect future generations.

For further information related to the contents of this report, see the follow­ing websites.

•	www.socialsecurity.gov/OACT/TR/TR08/index.html

•	www.cms.hhs.gov/ReportsTrustFunds/

•	www.treas.gov/offices/economic-policy/social_security.html