<<  <  >  >>

Table 8

The 1.8 Percent Solution: Pay-As-You-Go Payroll Tax vs. Market-Based Payroll Deduction

Pay-As-You-Go 12.4% Payroll Tax

Market-Based 12.4% Payroll Deduction

(Present Law + 1.8%)

Column

1

2

3

4

5

6

7

8

9

10

Cash Flow

Projected

OASI

Cash Flow

9.6%

Cash Flow

Cash Flow Difference as

Year

GDP

12.4% Tax

Benefit

Cash Flow

as % GDP

Payroll Tax OASI Benefit Cash Flow

as % GDP

Difference

% GDP

1998

$ 8,083

$

427

$

326

$

100

1.24%

$

330

$

326

$

4

0.05%

$

(96)

-1.19%

1999

8,384

441

337

104

1.24%

341

336

5

0.06%

(99)

-1.18%

2000

8,735

459

351

109

1.24%

356

350

6

0.07%

(102)

-1.17%

2001

9,119

478

366

112

1.22%

370

365

5

0.06%

(106)

-1.16%

2002

9,532

498

383

115

1.21%

386

381

5

0.05%

(110)

-1.15%

2003

9,981

520

401

119

1.19%

403

398

5

0.05%

(114)

-1.14%

2004

10,469

544

421

123

1.18%

421

417

4

0.04%

(119)

-1.13%

2005

11,002

572

443

129

1.17%

443

437

5

0.05%

(123)

-1.12%

2006

11,579

600

467

133

1.15%

464

460

5

0.04%

(128)

-1.10%

2007

12,202

632

493

139

1.14%

490

484

5

0.04%

(133)

-1.09%

2008

12,866

665

522

142

1.11%

515

512

3

0.02%

(139)

-1.08%

2009

13,540

699

556

144

1.06%

541

544

(2)

-0.02%

(145)

-1.07%

2010

14,253

736

592

144

1.01%

569

579

(9)

-0.07%

(152)

-1.07%

2011

15,000

774

632

142

0.95%

598

617

(19)

-0.13%

(160)

-1.07%

2012

15,779

811

675

136

0.86%

628

660

(32)

-0.20%

(167)

-1.06%

2013

16,571

851

724

126

0.76%

659

708

(50)

-0.30%

(175)

-1.06%

2014

17,393

891

778

113

0.65%

690

761

(71)

-0.41%

(184)

-1.06%

2015

18,255

934

837

96

0.53%

723

820

(97)

-0.53%

(193)

-1.06%

2016

19,145

977

901

76

0.40%

756

883

(126)

-0.66%

(202)

-1.06%

2017

20,077

1,022

969

53

0.26%

791

951

(160)

-0.80%

(212)

-1.06%

2018

21,041

1,069

1,042

27

0.13%

828

1,024

(196)

-0.93%

(223)

-1.06%

2019

22,048

1,118

1,120

(2)

-0.01%

865

1,102

(236)

-1.07%

(234)

-1.06%

2020

23,096

1,168

1,202

(34)

-0.15%

904

1,184

(280)

-1.21%

(245)

-1.06%

2021

24,185

1,221

1,288

(68)

-0.28%

945

1,271

(326)

-1.35%

(257)

-1.06%

2022

25,323

1,275

1,373

(98)

-0.39%

987

1,355

(368)

-1.45%

(268)

-1.06%

2023

26,503

1,331

1,463

(131)

-0.50%

1,031

1,443

(412)

-1.56%

(280)

-1.06%

2024

27,726

1,391

1,560

(170)

-0.61%

1,077

1,539

(463)

-1.67%

(292)

-1.05%

2025

29,017

1,453

1,662

(209)

-0.72%

1,125

1,640

(515)

-1.78%

(305)

-1.05%

2026

30,368

1,517

1,768

(250)

-0.82%

1,175

1,744

(569)

-1.87%

(318)

-1.05%

2027

31,777

1,585

1,876

(291)

-0.91%

1,227

1,850

(623)

-1.96%

(331)

-1.04%

2028

33,269

1,658

1,989

(331)

-1.00%

1,283

1,962

(678)

-2.04%

(346)

-1.04%

2029

34,860

1,734

2,108

(373)

-1.07%

1,343

2,078

(735)

-2.11%

(361)

-1.03%

2030

36,536

1,814

2,229

(415)

-1.14%

1,405

2,197

(793)

-2.17%

(376)

-1.03%

2031

38,300

1,899

2,356

(457)

-1.19%

1,470

2,321

(851)

-2.22%

(392)

-1.02%

2032

40,159

1,988

2,486

(499)

-1.24%

1,539

2,449

(910)

-2.27%

(410)

-1.02%

2033

42,120

2,081

2,619

(538)

-1.28%

1,611

2,578

(967)

-2.30%

(428)

-1.02%

2034

44,185

2,178

2,752

(573)

-1.30%

1,686

2,709

(1,022)

-2.31%

(447)

-1.01%

2035

46,339

2,280

2,886

(607)

-1.31%

1,765

2,840

(1,075)

-2.32%

(467)

-1.01%

2036

48,585

2,385

3,024

(638)

-1.31%

1,847

2,974

(1,127)

-2.32%

(487)

-1.00%

2037

50,939

2,497

3,166

(669)

-1.31%

1,933

3,119

(1,186)

-2.33%

(515)

-1.01%

2038

53,420

2,614

3,313

(699)

-1.31%

2,024

3,266

(1,242)

-2.33%

(542)

-1.01%

2039

56,037

2,736

3,464

(727)

-1.30%

2,118

3,335

(1,216)

-2.17%

(487)

-0.87%

Notes

Security," Cato Institute Social Security Paper No. 8,

April 30, 1997, p. 11.

The author is grateful to Charles Babin, Sylvester Schieber,

Laurence Kotlikoff, Carolyn Weaver, Steve Entin, John

2See

Stephen J. Entin, Social Security Transition: Maxi-

Goodman, Michael Tanner, and Peter Ferrara for their

mizing Economic Benefits, Institute for Research on the

helpful and thoughtful comments. In addition, Bruce

Economics of Taxation, Washington, May 29, 1998.

Schobel was instrumental in his wisdom and untiring ded-

31998

Annual Report of the Board of Trustees of the

ication to accuracy. The author takes responsibility for any

Federal Old-Age and Survivors Insurance and Disability

and all errors.

Insurance Trust Funds. (Washington: Government Printing

1See

Peter J. Ferrara, "A Plan for Privatizing Social

Office, 1998).

12