BPEA | 1997 No. 2

Macroeconomic Aspects of Social Security Reform

Discussants: William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

1997, No. 2

UNDER CURRENT LEGISLATION, the U.S. social security system has a
long-run financial problem. The intermediate (central) projection of the
Office of the Actuary of the Social Security Administration (SSA)
shows that the payroll tax would have to be increased by 2.23 percent
immediately to restore actuarial balance to the Old-Age, Survivors, and
Disability Insurance (OASDI) program for the seventy-five-year projection
period. As shown in figure 1 (which presents the high- and lowcost
projections in addition to the intermediate), the long-run deficit is
made up of an excess of revenues over costs, followed by the reverse. I
Under current law, the excess of OASDI costs over revenues would be
paid out of the interest earnings of the trust funds and then out of the
trust funds themselves. If the intermediate projection is correct, the
trust funds will reach zero in 2029 (see figures 2 and 3). At this date,
the projected flow of revenue is roughly three-quarters of projected
benefits. The commonly voiced fear that social security “will not be
there for me” reflects a widespread lack of awareness that substantial revenue will still flow to social security after the trust funds are