2011 OASDI Trustees Report

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Under current law, the cost of Social Security will generally increase faster than the program’s income because of the aging of the baby-boom generation, continuing low fertility compared to the baby-boom period, and increasing life expectancy. Based on the Trustees’ best estimate, program cost will exceed non-interest income in 2011, as it did in 2010, and remain higher throughout the remainder of the 75‑year projection period. Social Security’s combined trust funds are projected to increase with the help of interest income through 2022 and allow full payment of scheduled benefits on a timely basis until the trust funds become exhausted in 2036. At that time, annual non-interest income to the trust funds is projected to equal about 77 percent of program cost. By 2085, annual non-interest income is projected to be about 74 percent as large as the annual cost of the OASDI program.
The OASI Trust Fund and the DI Trust Fund are projected to have sufficient funds to pay full benefits on time until 2038 and 2018, respectively. Given that the DI Trust Fund is projected to become exhausted in 2018, legislative action will be needed as soon as possible. At a minimum, a reallocation of the payroll tax rate between OASI and DI would be necessary, as was done in 1994.
Over the full 75-year projection period, the actuarial deficit estimated for the combined trust funds is 2.22 percent of taxable payroll — 0.30 percentage point larger than the 1.92 percent deficit projected in last year’s report. Solvency of the combined OASDI Trust Funds for the next 75 years could be restored under the intermediate assumptions if increases in revenue were made equivalent to immediately and permanently increasing the Social Security payroll tax from its current level of 12.40 percent (for employees and employers combined) to 14.55 percent.1 Alternatively, changes could be made that are equivalent to reducing scheduled benefits by about 13.8 percent. Other ways of reducing the deficit include other sources of revenue or some combination of these approaches.
If no substantial action is taken for several years, then changes necessary to maintain Social Security solvency will be concentrated on fewer years and fewer generations. This possible outcome can be seen by examining the large and sudden changes that would be required if action were deferred until the combined trust funds become exhausted in 2036. For example, either of the following two actions would eliminate the shortfall for the 75-year period as a whole by specifically eliminating annual deficits after trust fund exhaustion:
Payroll taxes could be raised to finance scheduled benefits fully in every year starting in 2036. The payroll tax rate could be increased to about 16.4 percent at the point of trust fund exhaustion in 2036 and continue rising generally thereafter, reaching about 16.9 percent in 2085.
Similarly, benefits could be reduced to the level that is payable with scheduled tax rates in each year beginning in 2036. Scheduled benefits could be reduced 23 percent at the point of trust fund exhaustion in 2036, with reductions reaching 26 percent in 2085.
Based on the assumption of continued increase in the average age of the population after the 75‑year period (due to expected improvement in life expectancy), Social Security’s annual cost will very likely continue to grow faster than non-interest income after 2085. As a result, ensuring solvency of the system beyond 2085 would likely require further changes beyond those expected to be needed through 2085.
The projected trust fund shortfalls should be addressed in a timely way so that necessary changes can be phased in gradually and workers and beneficiaries can be given time to adjust to them. Implementing changes sooner would allow the needed revenue increases or benefit reductions to be spread over more generations. Social Security will play a critical role in the lives of 56 million beneficiaries and 158 million covered workers and their families in 2011. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.
For further information related to the contents of this report, see the following websites:

The necessary tax rate increase differs from the 2.22 percent actuarial deficit for two reasons. First, the necessary tax rate is the rate required to maintain solvency throughout the period that would not result in any trust fund reserve at the end of the period. Second, the necessary tax rate is increased based on the expectation that any change in tax rates will affect the proportion of employee compensation paid in wages. For proposed changes in law that would alter payroll tax rates, an increase in payroll taxes is presumed to result in a small shift of wages and salaries to forms of employee compensation that are not subject to the payroll tax.

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