retirees but reduce them even more to those who
Figure 2
have worked fewer than 38 years. The report
Required Decrease in Benefits to Match Taxes
also suggested that increasing the eligibility age
0
at which one receives full benefits should be
accelerated, the effect of which would also
-5
reduce benefits. And a proposal was presented to
-10
alter the benefit formula in a way that would
directly reduce benefits.
-15
If the problem were just cash flow, it could be
-20
remedied by cutting benefits or raising taxes by
the amount necessary to balance the system.
-25
Figures 2 and 3 show by how much.18
-30
If balance were achieved through proportion-
al benefit cuts across all income groups, then
-35
low-wage workers born in 1976 whose income
-40
is about $13,500 this year would have their
expected monthly retirement benefit of $841
-45
reduced to only $621. Given that Social Security
-50
is the only source of income for about seven
2040
2045
2060
2070
2075
2015
2020
2025
2035
2050
2055
2065
2030
million retirees, this reduction would be a sig-
Year
nificant drop in their financial well-being.19
These workers are at the margin of subsistence,
so even a $50-a-month reduction is critical;
Figure 3
reducing monthly retirement benefits by more
Required Increase in Taxes to Match Benefits
than $200 could be devastating. An average
wage worker, one whose income is about
50
$27,000 in 1998, would lose about $340 in
monthly benefits. And future reductions would
45
have to be even greater because the system's
40
imbalance steadily widens over time.20
Raising taxes creates a different problem but
35
one of comparable import. When a person born
30
in 1976 retires, the payroll tax rate for those
working at the time of that retirement would
25
have to increase 43 percent from the current
level just to finance benefits that would have to
20
be paid under today's law. Thereafter the tax rate
15
would have to increase further because of the
system's progressively worsening imbalance.
10
Increased taxes do not buy increased benefits.
5
The poor return that already exists on today's
lower taxes would gradually worsen and would
0
never reverse course.21
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
2075
Year
Other proposals have been offered that
improve the cash flows. Among them are raising
the retirement age, reducing the cost-of-living
The 1.8 Percent Solution
adjustment, changing the benefit formula, and
means-testing benefits. As different from each
Recently, some have advocated that the solu-
other as they may appear, they are all variations
tion to Social Security's debt is to raise the pay-
on the same theme of cutting benefits or raising
roll tax rate by 1.8 percent of payroll because,
taxes. Depending on how they are structured,
according to estimates in the 1998 Trustees
the burden could be shared equally or unequally
Report, the OASI program is out of actuarial
balance by only that amount.22 One interpreta-
by income group and age.
5