PRESERVING SOCIAL SECURITY

1. 1 PRESERVING SOCIAL SECURITY Dorothy P. Rice Professor Emerita University of California, San Francisco This PowerPoint presentation provides an overview of Social Security � its benefits and financing. It was prepared by Virginia Reno, the Academy�s Vice President for Income Security Policy, to brief various groups following release of the report of the Social Security Trustees in March 2004. The purpose of the briefing is to provide basic background about Social Security, what it provides, what it costs, projections of its future finances, and ways to think about its affordability over the long-term future. This PowerPoint presentation provides an overview of Social Security � its benefits and financing. It was prepared by Virginia Reno, the Academy�s Vice President for Income Security Policy, to brief various groups following release of the report of the Social Security Trustees in March 2004. The purpose of the briefing is to provide basic background about Social Security, what it provides, what it costs, projections of its future finances, and ways to think about its affordability over the long-term future.

2. 2 Preserving Social Security Importance of Social Security as a Social Insurance Program Changes in Social Security over the years What are the myths & why Social Security is NOT in Crisis Social Security today & in the future What is Privatization Answer Questions The briefing is in three parts. First, we describe what Social Security does. Second, we review the latest projections of its financial outlook for the future. Then we will consider way to think about its projected size, cost, and affordability for American society.The briefing is in three parts. First, we describe what Social Security does. Second, we review the latest projections of its financial outlook for the future. Then we will consider way to think about its projected size, cost, and affordability for American society.

3. 3 IMPORTANCE OF SOCIAL SECURITY First, what is the purpose of Social Security? What does it do?First, what is the purpose of Social Security? What does it do?

4. 4 Why is Social Security Important? Protection against loss of earnings Critical component of retirement income Importance to Women Essential for people with disabilities Universality of Social Security Keeps people out of poverty

5. 5 How Many People Get Social Security? 47 million people receive Social Security each month 1 in 6 Americans get Social Security benefits Nearly 1 in 4 households get income from Social Security Social Security is a social insurance program. Workers pay in while they are employed and employers pay matching contributions. Then Social Security�s guaranteed benefits are available to support workers and their families in retirement, or when they lose their livelihood due to career-ending disability or the death of a family worker. By covering almost all workers and their families, Social Security pools risks broadly. How many Americans get Social Security? About 47 million people � or one in six Americans � get monthly benefits from Social Security. In one in four households, someone receives Social Security. The recipients could be a retired couple, a grandmother who looks after her grandchildren while her son and daughter-in-law are at work, a 55 year old meatpacker disabled by severe arthritis, or a 5th grader and his younger sister who became entitled to survivor benefits after their father died in the Iraqi war. Social Security is a social insurance program. Workers pay in while they are employed and employers pay matching contributions. Then Social Security�s guaranteed benefits are available to support workers and their families in retirement, or when they lose their livelihood due to career-ending disability or the death of a family worker. By covering almost all workers and their families, Social Security pools risks broadly. How many Americans get Social Security? About 47 million people � or one in six Americans � get monthly benefits from Social Security. In one in four households, someone receives Social Security. The recipients could be a retired couple, a grandmother who looks after her grandchildren while her son and daughter-in-law are at work, a 55 year old meatpacker disabled by severe arthritis, or a 5th grader and his younger sister who became entitled to survivor benefits after their father died in the Iraqi war.

6. 6 Who Gets Social Security? 29.5 million retired workers 4.9 million widows and widowers 5.9 million disabled workers 0.8 million adults disabled since childhood 3.1 million children TOTAL BENEFICIARIES- 44.2 million In all, about 30 million retired workers receive Social Security, as do about 5 million widows, about 6 million disabled workers, and 3 million young children. About 750,000 adults disabled since childhood also receive regular benefits from Social Security when a parent has died, become disabled, or retired. In all, about 30 million retired workers receive Social Security, as do about 5 million widows, about 6 million disabled workers, and 3 million young children. About 750,000 adults disabled since childhood also receive regular benefits from Social Security when a parent has died, become disabled, or retired.

7. 7 How many people rely on Social Security for most of their income? 90% of people 65 and older get Social Security Nearly 2 in 3 (64%) get half or more of their income from Social Security About 1 in 5 (20%) get all their income from Social Security 15 million people kept out of poverty because of Social Security As noted, Social Security benefits are relatively modest both in dollar amounts and in relation to retirees� prior earnings. Yet, the benefits are critically important to the families that receive them. About 90 percent of married couples and unmarried persons age 65 and older receive Social Security. It is the major source of income for most of those beneficiaries. Nearly two in three of these beneficiaries (64 percent) rely on Social Security for half or more of their total income from all sources. About one in five elderly Americans (20 percent) get all of their income from Social Security. As noted, Social Security benefits are relatively modest both in dollar amounts and in relation to retirees� prior earnings. Yet, the benefits are critically important to the families that receive them. About 90 percent of married couples and unmarried persons age 65 and older receive Social Security. It is the major source of income for most of those beneficiaries. Nearly two in three of these beneficiaries (64 percent) rely on Social Security for half or more of their total income from all sources. About one in five elderly Americans (20 percent) get all of their income from Social Security.

8. 8 Most elderly don�t receive pensions Percent with Employer-Sponsored Pensions All age 65+ 41% Couples 51% Unmarried men 37% Unmarried women 34% One reason that Social Security is such a large portion of income is that most Americans age 65 and older do not receive income from pensions, from either private employment or from jobs in federal, state or local government. Of couples age 65 and older just half (51 percent) do have a pension from the husband�s or wife�s work, or both. The unmarried are less likely to have pensions. About 34 percent of unmarried women and 37 percent of unmarried men receive pensions. Combining couples and the unmarried together, the pension receipt rate is 41 percent. One reason that Social Security is such a large portion of income is that most Americans age 65 and older do not receive income from pensions, from either private employment or from jobs in federal, state or local government. Of couples age 65 and older just half (51 percent) do have a pension from the husband�s or wife�s work, or both. The unmarried are less likely to have pensions. About 34 percent of unmarried women and 37 percent of unmarried men receive pensions. Combining couples and the unmarried together, the pension receipt rate is 41 percent.

9. 9 CHANGES IN SOCIAL SECURITY OVER THE YEARS

10. 10 Social Security Amendments 1935- Social Security Enacted 1939- Major Improvements Family Protection Benefits weighted to lower paid workers 1950- Raised benefits & started COLAs 1954- Disability Insurance Program 1961- Reduced retirement to age 62 1972- Supplemental Security Income

11. 11 1983- Major Program Changes Scheduled increases in payroll tax rates Coverage of Federal employees, members of Congress, non-profit employees Raised retirement age by 2027 Taxation of up to � of Social Security benefits

12. 12 Recent Improvements in Social Security 1999- Ticket To Work enacted 2000- Eliminated retirement earnings test fo beneficiaries at or above age 65

13. 13 SOCIAL SECURITY TODAYAND IN THE FUTURE

14. 14 How Much do Workers & Employers Pay? Employers pay an equal amount The total is 12.4 % for Social Security and 2.9% for Hospital Insurance Workers pay 6.2% of their earning for Social Security, and 1.45% of their earnings for Hospital Insurance under Medicare (Part A) Social Security tax base is $90,000 in 2005 How much do workers pay for Social Security? Workers pay 6.2 percent of their earnings for Social Security and 1.45 percent of their earnings for Hospital Insurance under Medicare. Employers pay an equal amount. So the total is 12.4 percent for Social Security and 2.9 percent for Medicare; altogether, 15.3 percent. Social Security taxes are paid on earnings only up to a cap -- $90,000 in 2005. That cap goes up each year with average wages. Medicare taxes are assessed on total wages; there is no cap. About 6 percent of all workers earn more than the Social Security tax cap. Their total wages account for about 17 percent of the wages of all workers in covered employment. The self employed pay both the employee and employer share of the tax. They get a deduction in their personal income taxes for the �employer� half of the total amount. No future increases in the tax rate are scheduled. Upper income Social Security beneficiaries pay income taxes on part of their Social Security benefits and some of this income-tax revenue is earmarked to go back to the Social Security trust funds. How much do workers pay for Social Security? Workers pay 6.2 percent of their earnings for Social Security and 1.45 percent of their earnings for Hospital Insurance under Medicare. Employers pay an equal amount. So the total is 12.4 percent for Social Security and 2.9 percent for Medicare; altogether, 15.3 percent. Social Security taxes are paid on earnings only up to a cap -- $90,000 in 2005. That cap goes up each year with average wages. Medicare taxes are assessed on total wages; there is no cap. About 6 percent of all workers earn more than the Social Security tax cap. Their total wages account for about 17 percent of the wages of all workers in covered employment. The self employed pay both the employee and employer share of the tax. They get a deduction in their personal income taxes for the �employer� half of the total amount. No future increases in the tax rate are scheduled. Upper income Social Security beneficiaries pay income taxes on part of their Social Security benefits and some of this income-tax revenue is earmarked to go back to the Social Security trust funds.

15. 15 What is non-taxable income? Income not subject to Social Security taxes includes: -- earnings above the tax cap, $90,000 in 2005; -- tax exempt compensation (non-taxable fringe benefits, tax-deferred accounts, etc); -- wages of about one in four state and local workers who are not covered by Social Security; -- income from property � stock dividends, interest, and rental income. What is that 61 percent of national income that is not taxed to help pay for Social Security? It includes: -- earnings above the maximum that is taxed and counted for Social Security, or $90,000 in 2005. About 6 percent of workers earn more than the cap. -- employee compensation that is exempt from Social Security taxes includes such items as non-taxable fringe benefits (employer financed pensions and health coverage premiums) and tax deferred spending accounts; -- wages of the roughly one in four employees of state and local government who are not covered by Social Security;* -- income from wealth or property, such as stock dividends, interest on investments, and rental income from real estate. Some observers have suggested taxing some of these other categories in income and earmarking it for Social Security. * Historically, state and local governments had a choice whether or not to cover employees under Social Security. Legislation in 1983 eliminated the option for state and local entities to opt out of Social Security coverage. Today about one in four state and local employee are not covered by Social Security (U.S. Ways and Means Committee, 2004. Green Book, table 1-6.).What is that 61 percent of national income that is not taxed to help pay for Social Security? It includes: -- earnings above the maximum that is taxed and counted for Social Security, or $90,000 in 2005. About 6 percent of workers earn more than the cap. -- employee compensation that is exempt from Social Security taxes includes such items as non-taxable fringe benefits (employer financed pensions and health coverage premiums) and tax deferred spending accounts; -- wages of the roughly one in four employees of state and local government who are not covered by Social Security;* -- income from wealth or property, such as stock dividends, interest on investments, and rental income from real estate. Some observers have suggested taxing some of these other categories in income and earmarking it for Social Security. * Historically, state and local governments had a choice whether or not to cover employees under Social Security. Legislation in 1983 eliminated the option for state and local entities to opt out of Social Security coverage. Today about one in four state and local employee are not covered by Social Security (U.S. Ways and Means Committee, 2004. Green Book, table 1-6.).

16. 16 Where Does the Money Go? It is credited to the Social Security trust funds. Projections of income and outgo of the trust funds are made by the Office of the Chief Actuary, SSA. Annual Trustees� Report, 2004. Where does the money go? The Social Security taxes that workers and employers pay are credited to the Social Security trust funds. The trust funds are a way to keep track of the income that is earmarked for Social Security and the payments that go to Social Security beneficiaries. A board of trustees oversees the trust funds. It is made up of the Secretary of the Treasury, who is the managing Trustee, and the Secretaries of Labor and of Health and Human Services, and the Commissioner of Social Security. In addition, two �public trustees� who are experts in Social Security and come from different political parties serve on the Board. The Office of the Chief Actuary in the Social Security Administration makes projections of Social Security finances that are used by the Trustees in their annual report to Congress.Where does the money go? The Social Security taxes that workers and employers pay are credited to the Social Security trust funds. The trust funds are a way to keep track of the income that is earmarked for Social Security and the payments that go to Social Security beneficiaries. A board of trustees oversees the trust funds. It is made up of the Secretary of the Treasury, who is the managing Trustee, and the Secretaries of Labor and of Health and Human Services, and the Commissioner of Social Security. In addition, two �public trustees� who are experts in Social Security and come from different political parties serve on the Board. The Office of the Chief Actuary in the Social Security Administration makes projections of Social Security finances that are used by the Trustees in their annual report to Congress.

17. 17 Benefits Compared to Earnings This chart shows how Social Security benefits compare to a retiree�s past earnings for a �low;� �medium;� �high;� and �maximum� earner. The short bars are the benefits that a retiree would get at age 65. The tall bars represent the retiree�s typical (or average indexed) lifetime earnings while working. Social Security benefits replace a larger share of past earnings for lower earners. While higher earners receive larger benefit checks, those checks represent a smaller fractions of what they had been making. For example, a 65-year-old who retired in 2004 with a lifetime of �medium� earnings (about $34,600 in 2003) would receive about $14,500 a year, which would replace about 40 percent of past earnings. A �low� earner, who made about $15,600 in 2003 would receive about $8,800, which would replace about 56 percent of prior earnings. A worker who always earned the maximum amount that is taxed and counted toward Social Security ($87,000 in 2003) would get benefits that replace about 25 percent of prior earnings. These benefits are for workers who claim Social Security at age 65. Workers who take benefits at 62 (the earliest eligibility age) have a permanent benefit reduction of 20 percent. Most retirees take early benefits that are permanently reduced. This chart shows how Social Security benefits compare to a retiree�s past earnings for a �low;� �medium;� �high;� and �maximum� earner. The short bars are the benefits that a retiree would get at age 65. The tall bars represent the retiree�s typical (or average indexed) lifetime earnings while working. Social Security benefits replace a larger share of past earnings for lower earners. While higher earners receive larger benefit checks, those checks represent a smaller fractions of what they had been making. For example, a 65-year-old who retired in 2004 with a lifetime of �medium� earnings (about $34,600 in 2003) would receive about $14,500 a year, which would replace about 40 percent of past earnings. A �low� earner, who made about $15,600 in 2003 would receive about $8,800, which would replace about 56 percent of prior earnings. A worker who always earned the maximum amount that is taxed and counted toward Social Security ($87,000 in 2003) would get benefits that replace about 25 percent of prior earnings. These benefits are for workers who claim Social Security at age 65. Workers who take benefits at 62 (the earliest eligibility age) have a permanent benefit reduction of 20 percent. Most retirees take early benefits that are permanently reduced.

18. 18 Shares of Income to the Trust Funds, 2004 Where does the Social Security trust fund money come from? Social Security taxes were 84 percent of the trust funds� income in 2004. About 14 percent came from interest on Treasury securities held by the trust funds. Income taxes that upper-income beneficiaries pay on their benefits account for 2 percent of trust fund income. (Part of Social Security benefit income is subject to federal income taxes for single beneficiaries with countable income over $25,000 and for couples with such income over $34,000. Countable income includes half of Social Security plus all of most other sources of income.)Where does the Social Security trust fund money come from? Social Security taxes were 84 percent of the trust funds� income in 2004. About 14 percent came from interest on Treasury securities held by the trust funds. Income taxes that upper-income beneficiaries pay on their benefits account for 2 percent of trust fund income. (Part of Social Security benefit income is subject to federal income taxes for single beneficiaries with countable income over $25,000 and for couples with such income over $34,000. Countable income includes half of Social Security plus all of most other sources of income.)

19. 19 Beneficiaries per 100 workers 20 per 100 workers in 1960 30 per 100 workers in 2001 50 per 100 workers in 2050 How many beneficiaries are there per 100 covered worker? The most commonly cited measure of the demographic shift is the number of beneficiaries relative to the number of workers. This ratio shows a quite significant shift. The number of beneficiaries per worker rose from 20 per 100 workers in 1960, to 30 per 100 workers today. It is projected to rise to 50 per 100 workers in 2050. Said the other way around, there were 5 workers for every beneficiary in 1960. Today, there are three workers for every beneficiary. In 2050, there will be two workers for every beneficiary. How many beneficiaries are there per 100 covered worker? The most commonly cited measure of the demographic shift is the number of beneficiaries relative to the number of workers. This ratio shows a quite significant shift. The number of beneficiaries per worker rose from 20 per 100 workers in 1960, to 30 per 100 workers today. It is projected to rise to 50 per 100 workers in 2050. Said the other way around, there were 5 workers for every beneficiary in 1960. Today, there are three workers for every beneficiary. In 2050, there will be two workers for every beneficiary.

20. 20 How Many People Does Each Worker Support? All Americans rely on what workers produce. Workers support other people within families; between relatives in separate households; and taxes that support public benefits and services � education, Social Security, Medicare, etc. How many people does each worker support? A broader measure of the support burden on workers looks at the total number of people that each worker supports, on average. How has this number changed over time? Workers support people in various ways. They support themselves and family members they live with. They may also support relatives in other households. And they support others through taxes that pay for public benefits and services, such as public education, Social Security and Medicare. The consumer-to-worker ratio shows how this support from workers to everyone has changed over time.How many people does each worker support?

21. 21 How fast is Social Security growing as a share of the economy? Today, Social Security benefits are 4.3% of GDP and Social Security taxes equal 4.9% of GDP. By 2030, SS benefits are projected to be 6.3% of GDP � an increase of 1.4 percentage points over what we are paying today. When boomers were children, spending on public education rose by twice as much over a similar period � 2.9 percentage points in 25 years. Annual Trustees� Report, 2004 A still broader view considers Social Security as a share of the entire economy. Gross domestic product (GDP) is the value of all goods and services produced in the United States in a given year. It is also the sum of all income Americans received from all sources as a result of producing those goods and services. Today, Social Security benefits are equal to 4.3 percent of GDP. The Social Security taxes we pay are 4.9 percent of GDP. The difference reflects the fact that Social Security taxes now exceed benefits so the system is building reserves. How big will Social Security be in 2030? Benefits scheduled under current law would be equal to about 6.3 percent of GDP�an increase of 1.4 percentage points over what we are paying today in Social Security taxes. How does that compare with past changes in national spending when Boomers were children? Spending on public education grew by twice as much � 2.9 percentage points over 25 years. Public spending for education from local, state and federal government rose between 1950 and 1975 from 2.3 percent to 5.2 percent in 1975 � an increase of 2.9 percentage points over 25 years. U.S. Social Security Administration. 1982. Statistical Supplement to the Social Security Bulletin, 1982, table 1, p. 57A still broader view considers Social Security as a share of the entire economy. Gross domestic product (GDP) is the value of all goods and services produced in the United States in a given year. It is also the sum of all income Americans received from all sources as a result of producing those goods and services. Today, Social Security benefits are equal to 4.3 percent of GDP. The Social Security taxes we pay are 4.9 percent of GDP. The difference reflects the fact that Social Security taxes now exceed benefits so the system is building reserves. How big will Social Security be in 2030? Benefits scheduled under current law would be equal to about 6.3 percent of GDP�an increase of 1.4 percentage points over what we are paying today in Social Security taxes. How does that compare with past changes in national spending when Boomers were children? Spending on public education grew by twice as much � 2.9 percentage points over 25 years. Public spending for education from local, state and federal government rose between 1950 and 1975 from 2.3 percent to 5.2 percent in 1975 � an increase of 2.9 percentage points over 25 years. U.S. Social Security Administration. 1982. Statistical Supplement to the Social Security Bulletin, 1982, table 1, p. 57

22. 22 How big is the Social Security financing shortfall as a share of GDP? The financing deficit as a share of taxable wages is 1.89 percent over the next 75 years The same deficit as a share of the entire economy (or GDP) is 0.7 percent. As we noted earlier (slide 22), the Trustees report shows that the long-range deficit in the Social Security program is 1.89 percent of all wages that are subject to Social Security taxes over the next 75 years. The deficit is a much smaller share of total national income or gross domestic product. As a share of gross domestic product, the Social Security financing deficit is 0.7 percent over the next 75 years. As we noted earlier (slide 22), the Trustees report shows that the long-range deficit in the Social Security program is 1.89 percent of all wages that are subject to Social Security taxes over the next 75 years. The deficit is a much smaller share of total national income or gross domestic product. As a share of gross domestic product, the Social Security financing deficit is 0.7 percent over the next 75 years.

23. 23 WHAT ARE THE MYTHS &WHY SOCIAL SECURITY IS NOT IN CRISIS

24. 24 Myths About Social Security There is an immediate crisis Social security is bankrupt Social Security will not exist for young workers when they retire Unmanageable costs Trust fund assets are worthless paper

25. 25 2004 Trustees Report Trust Fund income = $654 billion (taxes) Trust Fund Outgo = $500 billion (benefits) Surplus = $153 billion By law, surpluses are invested in U.S. government securities and earn interest that goes to the trust funds. First, in the near term Social Security is taking more in than it is paying out in benefits. In 2004, projected income to the trust funds (mainly Social Security taxes) was $654 billion, while projected outgo (mainly benefit payments) was $500 billion, leaving an annual surplus of $153 billion. These surpluses, by law, are invested in U.S. treasury securities and earn interest that goes to the trust funds. The �outgo� from the Social Security trust funds covers administrative expenses of the Social Security program, as well as benefit payments. Administrative costs are less than 1 percent of total outgo. First, in the near term Social Security is taking more in than it is paying out in benefits. In 2004, projected income to the trust funds (mainly Social Security taxes) was $654 billion, while projected outgo (mainly benefit payments) was $500 billion, leaving an annual surplus of $153 billion. These surpluses, by law, are invested in U.S. treasury securities and earn interest that goes to the trust funds. The �outgo� from the Social Security trust funds covers administrative expenses of the Social Security program, as well as benefit payments. Administrative costs are less than 1 percent of total outgo.

26. 26 The Actuarial Deficit(Best Estimate) Long-range deficit is 1.89% of taxable payroll This means: The gap would be closed if the Social Security tax rate were 1.89% higher. That is, 0.95% higher for both workers and employers, or 7.15% instead of 6.2% today. What is the �actuarial deficit?� Some experts talk about the �actuarial deficit.� It is a way to measure the status of Social Security over the next 75 years in a single number. Under the intermediate (best estimate) scenario, the Social Security Trustees report an actuarial deficit of 1.89 percent of taxable wages. This means that the gap in Social Security finances would be closed if the tax rate were 1.89 percentage points higher. That is, 0.95 percent, each, for workers and employers, so that each would pay 7.15 percent instead of 6.2 percent. The Congressional Budget Office (CBO) estimated a smaller deficit in its June 2004 report. That deficit is about 1 percent of wages -- or about half the size projected by the Trustees. The CBO estimate suggests that the system would be in balance for 75 years if workers and employers each paid 6.7 percent of wages, instead of 6.2 percent. The different projections reveal the inherent uncertainty involved in predicting what will happen in 30, 40 or 50 years. What is the �actuarial deficit?� Some experts talk about the �actuarial deficit.� It is a way to measure the status of Social Security over the next 75 years in a single number. Under the intermediate (best estimate) scenario, the Social Security Trustees report an actuarial deficit of 1.89 percent of taxable wages. This means that the gap in Social Security finances would be closed if the tax rate were 1.89 percentage points higher. That is, 0.95 percent, each, for workers and employers, so that each would pay 7.15 percent instead of 6.2 percent. The Congressional Budget Office (CBO) estimated a smaller deficit in its June 2004 report. That deficit is about 1 percent of wages -- or about half the size projected by the Trustees. The CBO estimate suggests that the system would be in balance for 75 years if workers and employers each paid 6.7 percent of wages, instead of 6.2 percent. The different projections reveal the inherent uncertainty involved in predicting what will happen in 30, 40 or 50 years.

27. 27 The Long-Range Forecast(Best estimate) In 2018, tax revenues into the trust funds forecasted to be less than benefits due that year. Interest on the reserves and the assets themselves will help pay for benefits until 2042. In 2042, reserves are projected to be depleted. Income is forecast to cover 73% of benefits due then. By 2078, assuming no change in taxes, benefits or forecasts, revenue would cover about 68% of benefits due then. What does the 2004 long range forecast show? Under the intermediate (or best estimate) set of assumptions, the 2004 report finds: The system will continue to run annual surpluses until 2018. In that year, for the first time, tax revenue is projected to be less than benefits due. But interest income on the reserves will help cover the costs. Interest on the trust fund reserves and the assets themselves will help pay for benefits until 2042. In 2042, reserves are projected to be depleted (assuming no change in benefits or taxes). Income is projected to cover 73 percent of benefits due then. The system will not be �broke� in that Social Security taxes will keep coming in. But, if this projection holds, policy makers will need to make some changes before 2042, to ensure that all legislated benefits can be paid.What does the 2004 long range forecast show? Under the intermediate (or best estimate) set of assumptions, the 2004 report finds: The system will continue to run annual surpluses until 2018. In that year, for the first time, tax revenue is projected to be less than benefits due. But interest income on the reserves will help cover the costs. Interest on the trust fund reserves and the assets themselves will help pay for benefits until 2042. In 2042, reserves are projected to be depleted (assuming no change in benefits or taxes). Income is projected to cover 73 percent of benefits due then. The system will not be �broke� in that Social Security taxes will keep coming in. But, if this projection holds, policy makers will need to make some changes before 2042, to ensure that all legislated benefits can be paid.

28. 28 WHY IS SOCIAL SECURITY NOT IN CRISIS Social Security is stronger today than it has been any time in history Social Security Trust Fund reserves amount to $1.6 trillion The 2004 Trust Fund reserves were projetd to grow for another 20 years Reserves will run out in 2042, nearly � century in the future

29. 29 Social Security Shortfall & Tax Cuts The Social Security shortfall over the next 75 years is smaller than the lost revenue from making permanent the tax cuts of 2001 and 2003. The Social Security shortfall is about one-third the size of the tax cuts over the next 75 years. Social Security deficit 0.7% of GDP Tax cuts made permanent 2.2% of GDP Center on Budget and Policy Priorities, March 5, 2003. �The Administration�s Tax Cuts and the Long-Term Budget Outlook� How does the Social Security financial shortfall compare with the size of other recent changes in fiscal policy? A study by the Center on Budget and Policy Priorities compared the Social Security deficit with the foregone revenue that would result from making permanent the 2001 and 2003 tax cuts. It found that the Social Security shortfall is about one-third the size of the aggregate revenue loss over the next 75 years if the 2001 and 2003 tax cuts are made permanent. That is, the Social Security shortfall is 0.7 percent of gross domestic product, while the combined reductions in personal income taxes, corporate income taxes, and estate taxes, if made permanent, amount to about 2.2 percent of GDP over the next 75 years. How does the Social Security financial shortfall compare with the size of other recent changes in fiscal policy? A study by the Center on Budget and Policy Priorities compared the Social Security deficit with the foregone revenue that would result from making permanent the 2001 and 2003 tax cuts. It found that the Social Security shortfall is about one-third the size of the aggregate revenue loss over the next 75 years if the 2001 and 2003 tax cuts are made permanent. That is, the Social Security shortfall is 0.7 percent of gross domestic product, while the combined reductions in personal income taxes, corporate income taxes, and estate taxes, if made permanent, amount to about 2.2 percent of GDP over the next 75 years.

30. 30 PRIVATIZATION

31. 31 What is meant by Privatization? Bush�s plan- workers under age 55 can use part of their SS payroll taxes to create private investment accounts to generate greater benefits than traditional SS benefits Allow workers to divert 4% of wages up to $1,000 a year into a personal investment acct. Initial benefits would rise with the CPI, not the rise in wages. A retiree in 2032 would see benefits cut 18.2%, in 2052 benefit cuts of 32% Guaranteed benefits would be cut back by the amount contributed to personal accounts

32. 32 Implications of Privatization Private accounts will require benefit cuts They will run up huge deficits to finance the transition It means gambling with retirement security Very high administrative costs It exposes the entire retirement portfolio to stock market risks It does not solve the financial problems of Social Security

33. 33 Who Benefits from Privatization? Wall Street would make billions of dollars in profits by managing private accounts

34. 34 Social Security is a Program That Works Poverty among the elderly has ben reduced Without SS more than � the elderly would have incomes below the poverty line � of over 65 beneficiaries receive more than 90% of their income from SS Today 185 million wage earners contribute to the program 45 million people, retired or disabled workers and their dependents, widows, & cildren get SS payments every month

35. 35 Conclusion Social Security is not in crisis. The system is not broke. There is no reason to dismantle this basic part of our social safety net, a system that is vital to a large majority of our elderly population We can tweak the system by: Raising taxable wages above $90,000 Adjust the standard inflation measure to slow the annual COLAs Include all state and local government employees in the Social Security System Raise the retirement age for entitlement to full benefits Devote an inheritance tax on estates worth at least $3.5 million to Social Security