The baby boom generation already has begun to retire on Social Security and Medicare. For decades now, the federal government’s own official reports have been showing Social Security would not be able to pay all benefits promised to the baby boom without dramatic tax increases.
In 2010, Social Security began running a cash deficit for the first time since President Ronald Reagan saved the program from financial collapse in 1983. Under what the government’s actuaries call intermediate assumptions, those deficits will continue until 2033, when the combined Social Security trust funds run out of money to pay promised benefits. After that, paying all promised Social Security and Medicare benefits will require eventually almost doubling the current total payroll tax of 15.3 percent to nearly 30 percent.
Under what the government’s actuaries call pessimistic assumptions, the Social Security trust funds will run out of money to pay promised benefits by 2029. After that, paying all benefits promised to today’s young workers would require eventually raising the total payroll tax rate to 44 percent, three times current levels, and ultimately more. But the financing crisis begins much sooner than that. Indeed, it has already begun.
This Heartland Policy Brief is the third in a series on entitlement reform. It describes the looming crisis in Social Security, explaining the “pay-as-you-go” nature of our current system, which taxes and redistributes rather than saves and invests. It also describes a way to address the crisis through personal accounts, proven successful in Chile and other countries around the world as well as here in the United States. It explains how the personal accounts proposal introduced in This Policy Brief concludes personal accounts would solve the long-term financing crisis of Social Security without benefit cuts or tax increases. They would provide the foundation for restored prosperity for working people for the rest of this century, and beyond.