Increases in payroll taxes were always anticipated to keep up with the benefit payments as the system “matured” and more retirees received benefits. 1.) Although the baby-boom generation will greatly contribute to the growth of the elderly population, other demographic trends are also important. Increasing life expectancy and falling fertility rates in combination mean that fewer workers will be contributing to Social Security for each aged, disabled, dependent, or surviving beneficiary. 2). These demographic trends have fundamental implications for Social Security, other forms of retirement income, and our economy as a whole. Social Security revenues are expected to be about 14 percent less than expenditures over the next 75 years, and demographic trends suggest that this imbalance will grow over time. In 2029, the Social Security trust funds are projected to be depleted. 3). In effect, Treasury borrows Social Security’s excess revenues and uses them to help reduce the amount it must borrow from the public. In other words, Social Security’s excess revenues help reduce the overall, or unified, federal budget deficit. In just 15 years, Social Security’s expenditures are expected to exceed its cash revenues, and the government’s general fund will have to make up the difference, in effect repaying Social Security. As a result, Social Security’s cash flow will no longer help efforts to balance the budget but will start to hinder them. A variety of options is available within the current structure of the program. However, some proposals would go beyond restoring financial balance and fundamentally alter the program structure. Acting sooner rather than later also would mean that the funding shortfall could be addressed over a longer period at a lower annual cost. The effect of reforms on other retirement income sources and on various groups within the aged population should be well understood when making reforms. While Social Security’s financing is projected to pay full benefits until 2029, it will start to pose challenges for the federal budget much earlier—only 10 years from now. Social Security: The Trust Fund Reserve Accumulation, the Economy, and the Federal Budget (GAO/HRD-89-44, Jan. 19, 1989).
Why GAO Did This Study

GAO discussed: (1) the demographic trends contributing to the social security financing problem; (2) when the problem will begin to confront the federal government; (3) the alternatives for addressing the problem; and (4) the implications of these alternatives.

What GAO Found

GAO noted that: (1) increasing life expectancy and declining fertility rates pose serious challenges not just for the social security system but also for Medicare, Medicaid, the federal budget, and the economy as a whole; (2) the aging of the baby-boom generation will simply accelerate this trend; (3) social security receives more from payroll taxes than it pays out in benefits; (4) this excess revenue is helping build substantial trust fund reserves that are projected to help pay full benefits until 2029, according to social security's intermediate projections; (5) at the same time, this excess revenue helps reduce the overall federal budget deficit but will start to taper off after 2008; (6) in 2012, social security benefit payments are projected to exceed cash revenues, and the federal budget will start to come under considerable strain as the general fund starts to repay funds borrowed from the trust funds; (7) although social security's revenues currently exceed its expenditures, revenues are expected to be about 14 percent less than total projected expenditures over the next 75 years, according to Social Security Administration projections; (8) a variety of benefit reductions and revenue increases within the current program structure could be combined to restore financial balance; (9) some observers believe that the program structure should be reevaluated; (10) reform is necessary, and the sooner it is addressed, the less severe the necessary adjustments will be; (11) any economic growth and improvements in living standards achieved will also mitigate the strains that reform will impose; (12) any course taken will substantially affect both workers and retirees, other sources of retirement income, the income distribution, the federal budget, and even the economy as a whole; and (13) such effects should be well understood in making reforms.