Effects of Social Security Reform on Private and National Saving
50 Pages Posted: 5 Jul 2014
Date Written: 1997
Social Security is the largest federal government spending program and one of the most popular. The earmarked payroll taxes that ﬁnance Social Security currently exceed beneﬁt payments. By the end of 1996, the Social Security trust fund had accumulated about $566 billion in assets and was expected to grow to over $1.2 trillion by 2010. However, longer-term projections suggest that Social Security will face ﬁnancial shortfalls.
Using intermediate assumptions, the Social Security Trustees’ Report (1997) projects that beneﬁt payments will exceed program revenue (payroll tax receipts plus interest income) beginning in 2019. Trust fund balances will then start to decline as reserves are liquidated in order to meet the payments due. In the absence of programmatic changes, full beneﬁts will not be paid on time beginning in 2029. The actuarial deﬁcit over the prescribed 75-year projection period is estimated to be 0.84 percent of GDP; this represents a combination of surpluses in early years and deﬁcits in subsequent years. No ofﬁcial estimate of the actuarial deﬁcit beyond the 75-year horizon has been made, and certainly major uncertainties accompany any distant forecasts, but it appears likely that the system will continue to fall further out of balance.
Keywords: social security, saving
JEL Classification: H55, E21
Suggested Citation: Suggested Citation