now, when other sources of retirement security, such as private savings and housing equity, have been so severely diminished. If changes are enacted soon, it will be possible to close the program’s financing gap with relatively modest, incremental tax increases or restraints on the growth of benefits (or both): the longer action is delayed, the larger will be the required changes to restore long term-solvency. Future retirees will confront increasing uncertainty about what they can expect from Social Security in their old age; and low-earning workers, who rely far more than others on Social Security benefits for retirement income, will be particularly vulnerable to sudden or unexpected benefit reductions.
The four illustrative reform options outlined in this chapter would all retain Social Security’s familiar program structure, avoid sudden or unexpected increases in payroll taxes and benefit cuts, and place the program on a solid financial footing for both the standard 75-year projection period and beyond. Their differences lie primarily in the extent to which they rely on benefit reductions or tax increases to restore long-term solvency and in the particular consequences for the level of future taxes paid and benefits received over time by workers at different levels of lifetime earnings.
The macrolevel implications of these differences for the size of government—as measured by levels of spending and revenues—are straightforward and easy to describe. Option 4, which relies on higher taxes to maintain currently scheduled benefits, would eventually raise revenues by about 1.3 percent of gross domestic product (GDP); in contrast, Option 1 would not increase them at all; and Options 2 and 3 would have intermediate effects in proportion to their reliance on tax increases.