Social Security Reassessment

Report Outline
Continued Financing Squeeze
Social Insurance Concepts
New Proposals for Reform
Special Focus

Continued Financing Squeeze

Mounting Concern About Cost of System

Beginning in July, Social Security recipients will get a 9.9 percent increase in benefits to offset recent rises in the cost of living. The increase, the largest since Congress authorized automatic inflation adjustments in 1972, will add $10.2 billion to the Social Security retirement and disability tab, now running at nearly $100 billion a year. Although the rise in benefits will not entail any increase in Social Security taxes beyond those already mandated by law, it is likely to add fuel to the mounting taxpayers' revolt over the payroll tax bite.

Congress in 1977 approved steep increases in both Social Security tax rates and in the wage levels on which the tax is paid, to take effect between 1979 and 1990. As a result, Social Security taxes will more than double for most middle and upper income workers in the next five years. Many low-income families already are paying more in Social Security than in income tax. The same will hold true for an increasing number of middle-income families during the 1980s.

Congress is clearly uneasy about the political impact of the payroll tax hikes. The legislators are torn between a desire to keep Social Security contributions within reasonable bounds, and the need to keep the system from floundering financially. Each year since 1975, the Social Security program has paid out more to beneficiaries than it has collected in taxes. Before the 1977 increases were approved, government actuaries warned that deficits would mount and could bankrupt the system within a few years. The 1977 law improved, but did not completely solve, the financing problem. Experts believe the system will begin posting surpluses in 1981. But revenues will start falling short of costs by 2015 — shortly after the “baby boom” generation starts reaching retirement age.