Can Faster Growth Save Social Security?
Numerous commissions, individual researchers, and the Trustees of the Social Security system agree that the current Social Security system is not sustainable. The 2003 Trustees’ report forecasts that the program’s two trust funds (Old Age and Survivors Insurance and Disability Insurance) will be empty in 2042. After 2042, Social Security taxes would only cover about 70 percent of projected benefit costs. Even before the trust funds are exhausted, the combination of rapidly growing Social Security, Medicare, and Medicaid spending is likely to create intolerable budget pressures that will force major changes in policy.
The problem lies in demography. The economic burden imposed by these pay-as-you-go programs depends on the number of beneficiaries and the level of benefits that they have been promised. The economic resources available to the programs depend on the number of taxpayers and their ability and willingness to pay taxes. The population of elderly beneficiaries will soar in the future because of increased life expectancy and the retirement of baby boomers — the first boomers will apply for Social Security pensions in 2008. Meanwhile, the population of workers paying payroll taxes will stagnate because of low birth rates experienced since the early 1960s.
Although there is a broad consensus that the Social Security system is in trouble, a few dissenters argue that the Trustees are too pessimistic about future economic growth. The dissenters believe that a more realistic growth assumption would allow the trust funds to remain financially sound far longer than now expected. This brief will examine the implications of more rapid economic growth for Social Security and the federal budget as a whole, including a discussion of both the direct and indirect effects of growth.