1983 Social Security Amendments What Happened, and Why Is 2034 Now the Breaking Point? social security update
F our decades ago, our Social Security system went through a period of brinkmanship when, in the words of President Ronald Reagan, it faced “legitimate alarm that Social Security would soon run out of money.” The National Commis- sion on Social Security Reform (a.k.a. the Greenspan Commission) took up the challenge in 1982 and, after a year of deliberation, provided a blueprint for shoring up the program and stav- ing off insolvency for the long term, defined as a 75-year valuation period. So why are we now hearing that Social Security’s financial life expec- tancy has been shortened by 25 years? In several recent public confer- ences, Social Security’s Chief Actuary Steve Goss noted that despite the Greenspan Commission’s key future workforce assumptions birth rates, mortality rates, etc. being “extremely accurate,” Social Securi- ty’s financial situation was worsened
by an estimated 80 percent because of “unanticipated economic expe- rience.” He went on to describe the cause to be a phenomenon labeled “income dispersion.” To put this issue in everyday terms, “income dispersion” here means that while the projections used in the 1983 calculations assumed 90 percent of the total workforce payroll would be subject to FICA tax the 6.2 percent payroll tax paid by both employer and employee studies have shown that this projection fell substantially short. Between 1983 and 2000, the percentage of earnings assessed payroll taxes fell from 90 percent to 82.5 percent. Looked at another way, this means that 7.5 percent of total workforce payroll dollars today about $12 trillion annually did not produce revenue for Social Security. Mr. Goss characterizes “dispersion” as the difference in where real wage
growth occurred. He notes that real wage growth for the roughly 6 percent of top earners was more than three times that realized by the bottom 94 percent. Further, he suggests that the current propor- tion of total payroll subject to taxa- tion is expected to remain relatively constant in the decades ahead, absent legislative changes. As Social Security reform inevitably heats up, it is likely that the amount of US payroll subject to payroll tax will be an important factor in Congressio- nal deliberations seeking a solution to the program’s looming insolvency. It’s one of many ingredients that will be examined in hearings and testimony, and as future Congressional bills are introduced.
Gerry Hafer Social Security Advisor
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Volume 18 Issue 3 • 35
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