When we're talking about Social Security we are always talking big numbers - make you dizzy numbers! A widely distributed article by Stephen Ohlemacher published by Associated Press earlier this week gave context to these numbers. Both figures are the actuarial estimates by the Social Security Administration covering the 75 years from now though 2086. The $134 trillion number includes inflation occurring over this time frame while the $30.5 trillion amount is in 2012 dollars, a much more practical way to think about the problem. That works out to just over $400 billion per year over the 75 year period, so the problem is indeed substantial.
One way to address the shortfall is to do nothing. The result? Benefits would have to be cut across the board about 25% beginning in 2033. Thereafter the system would remain in approximate balance.
Another alternative would be to increase the payroll tax rate, currently 12.4% (includes employee and employer contributions), by 2.67 percent to a total of just over 15%. This would put the system back in balance. While that is a sharp tax increase, keep in mind that for the last two years they cut the tax rate paid by employees by 2%. It is scheduled to go back up by 2% in January 2013, restoring it to the prior rate. Though that will pose a drag on economic growth (2% less in most workers' paychecks to spend), no one is forecasting the end of the world. So a 2.67% increase, especially if it was feathered in over a decade or two, is conceivable. More likely a more modest tax increase will be combined with other modifications, such as raising the tax cap, raising (again) the Full Retirement Age since we are living longer, and adjustment to the cost of living formula.
While the numbers are big, the solution to the Social Security shortfall requires a mix of modest changes which, if implemented gradually, can return the system to solvency, not just for the Baby Boomers, but for those just entering the workforce today.
No comments:
Post a Comment