Social Security
Social Security refers to the federal Old-Age, Survivors, and Disability Insurance (OASDI) program passed in 1935. Social Security is a social insurance program that is primarily funded through dedicated payroll taxes called Federal Insurance Contributions Act tax (FICA). Tax deposits are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund. According to the 2012 Annual Report of the Social Security Trustees, Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that this deficit will continue. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. After 2020, Treasury will redeem trust fund assets in amounts that exceed interest earnings until exhaustion of trust fund reserves in 2033.

Entitlement Reform

from Goodman Institute,

In New Way to Care, John Goodman argues there are three important things to know about Social Security and Medicare.First, the two programs comprise an enormous portion of the wealth of most people at or near the age of retirement. Take a 60-year-old couple who together have earned an average income for most of their work life. If this couple retires at age 62, the present value of their expected Social Security benefits will be $1.2 million! If the couple waits to draw benefits until they reach the age of 70, their Social Security wealth will be $1.6 million. The value of Medicare is a little harder to calculate, but a reasonable estimate for a couple reaching the age of 65 is that Medicare’s health insurance coverage for the rest of their life is worth about $720,000. The average senior, therefore, is actually a millionaire in terms of entitlement spending wealth—even if they don’t have a penny in their bank account.Second, the entitlement wealth of seniors depends entirely on the willingness and ability of the federal government to tax young people.

The third thing you need to know is that the gap between the benefits we are promising to future retirees and the taxes that will be available to pay those benefits has been growing.

Social Security and Medicare are not the only programs that are promising future benefits to be paid by future taxpayers. Boston University professor Lawrence Kotlikoff estimates that the present value of the unfunded liability for all federal government programs is $210 trillion, an amount roughly equivalent to $654,205 for every person in the United States.

Further, waiting to solve the problem only makes the situation worse.

Doing nothing until 2023 would require a permanent 63% increase in all federal taxes to eliminate the total unfunded liability, while waiting until 2043 would require a 77% hike. An alternative would require a 40% permanent cut in all federal entitlement benefits starting in 2023. By 2043, it would require a 46% cut.

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