Tuesday, September 25, 2007
So what does it take to fix the problem? The report says if you were to not touch the current recipients of Social Security and only pay for the problem by increasing payroll taxes, you could take care of the permanent issue by a payroll tax rate increase of 3.5% (from the current 12.4% to 15.9%.) If instead you were to pay for it by just cutting benefits, the reduction today would be a little more than 20% of benefits. Obviously a combination could work as well. But if you wait until 2041, when the current $2 trillion surplus in Social Security would be exhausted, you would have to raise the payroll tax 5.8% or cut benefits 30%, or some combination of the two.
Of course, chastened by the Bush experience with the issue in 2005, don't expect to hear these solutions brought up in the elections next year. But those data do help us understand the cost of delay.