in the extent to which it will reduce the future growth of benefits or increase revenues or both, and each achieves the goal of restoring Social Security to long-term solvency without altering the program’s familiar and widely popular basic design.
The committee’s options are illustrative: many other packages of program changes (some of them frequently advanced) are obviously possible—with similar fiscal effects but differing distributional consequences. Options that would augment or alter the program’s basic structure are also possible and have been considered by others; however, the premise of the committee is that these options for structural change are neither necessary nor as politically feasible as the options we offer.
Since its enactment in 1935, Social Security has helped protect people against economic insecurity in old age. The basic program structure since its inception has been to assess payroll taxes on current workers and use those revenues to pay benefits to retirees.2 Virtually all workers—more than 160 million people—pay Social Security taxes. The program’s total income in 2008 was $805 billion.
In July 2009, the average monthly benefit paid to retired workers was $1,159 (about $14,000 annually), that for widows and widowers aged 60 and older was $1,118, and that for disabled workers $1,062 (Social Security Administration, 2009a).3 In the 2008 calendar year (the last year for which complete data are available), the total amount paid in benefits was $615 billion (Social Security Administration, 2009a).
Revenues are credited to the program’s trust fund, and benefit payments are made from it. The program was initially designed with the intent that dedicated, payroll tax revenues plus the interest earned on the trust fund reserves would generally cover the payments to current retirees. The balance of revenues not used immediately to pay benefits is retained in the fund,4 where it is held in the form of special Treasury bonds. Interest earned on those reserves—which are currently in excess of $2 trillion—is also retained until used to pay benefits.
Now, and in the near future, the annual flow of dedicated tax revenues is projected to be sufficient to fully cover the annual cost of currently scheduled benefits. But starting in 2016, Social Security revenue will fall short of benefit spending by a growing amount: when that occurs, first the interest on the reserves and then the reserves themselves will have to be drawn upon. Once the latter are exhausted—now projected to be in 2037—annual Social Security tax income will be sufficient to cover only about 75 percent of the annual benefits currently “scheduled.” If nothing is done to remedy