SOCIAL SECURITY Origins:

New Deal Contributors

Employee: 6.2% Employer: 6.2%

Taxable Maximum: $90,000

Contribute for 10 years to receive benefits

HOW DOES IT WORK? “Pay as you go” system

WHO GETS IT?

Recipients: 62.8% Retired 18.4% Survivor

Benefits 13% Disabled 5.8% Non working

spouses

SOCIAL SECURITY TRUST FUND

Surplus goes into the trust fund

2005: 1.7 trillion in trust fund 155 billion added in 2005

Government borrows 150 billion a year (IOUs in fund)

PROBLEMS

Baby Boomers

Living longer

Fewer childbirths

1945 42 workers/1 retiree

2010 3 workers/1 retiree

AMERICA’S POPULATION IS AGINGPOPULATION AGE 65 AND OVER

Source: Social Security and Medicare Trustees’ Report, April 2007

0%

5%

10%

15%

20%

25%

2007 2012 2017 2022 2027 2032 2037 2042 2047

Year

Per

cen

tage

of

Pop

ula

tion

Age

d 6

5 an

d O

ver

AMERICANS ARE LIVING LONGER AND HAVING FEWER CHILDREN

Consequently, fewer workers are available to support each Social Security recipient

1960: 5.1 to 1 Today: 3.3 to 1 2040: 2.1 to 1

Source: Social Security Administration, April 2007

PROBLEM

2015 Payouts exceed income Need to tap into the trust fund Govt. borrows $150 billion a year

2037/2052: Trust Fund depleted

Annual collections only pay for 74% of benefits

SOCIAL SECURITY AND MEDICARE PART A CUMULATIVE CASH SURPLUSES AND DEFICITS

IN CONSTANT 2007 DOLLARS—2007 THROUGH 2080

-$3,000

-$2,500

-$2,000

-$1,500

-$1,000

-$500

$0

$500

In B

illion

s o

f C

on

sta

nt

20

07

D

ollars

2007 2010 2020 2030 2040 2050 2060 2070 2080

Calendar Year

Source: Social Security Trustees’ Report—April 2007 (Intermediate Projections)

$708 Billion: Cumulative Social Security Cash Surplus

-$26 Trillion: Cumulative Social Security Cash Deficits

-$46 Trillion: Cumulative Medicare Part A Cash Deficits

-72.3 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits

MEDICARE COSTS SOAR IN THE COMING DECADES

0

5

10

15

2006 2010 2020 2030 2040 2050 2060 2070 2080

Calendar Year

As a

Perc

en

tag

e o

f G

DP

General Revenues required to fund the program

Income from dedicated taxes, premiums, and state transfers

Source: Medicare Trustees’ Report, 2007

HEALTH CARE COSTS ARE RISING FASTER

THAN THE ECONOMY

Source: Congressional Budget Office, December 2005.

0

5

10

15

20

25

2007 2012 2017 2022 2027 2032 2037 2042 2047

Year

Per

cen

tage

of

GD

P

Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.)

Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—consistent with the assumption used by the Medicare Trustees.

All Federal RevenuesIn Fiscal Year 2006

All Federal SpendingIn Fiscal Year 2006

PROPOSED SOLUTIONS Raise Max level from $90,000 to $140,000

Lower shortfall by 43%

Raise tax by ½% Lower shortfall by 24%

Raise age 67-70 Lower shortfall by 38%

Reduce benefits by 5% Lowers shortfall by 26%

Lower benefits for high wage workers Lowers shortfall by 14%

Put estate tax into Social Security Fund Lowers shortfall by 75%