Introduction

The Social Security system's long-term finances are in crisis. Under intermediate assumptions, the system's payroll tax must be raised by 38 percent if we want to pay promised benefits on an ongoing basis. This represents five cents per dollar earned by the typical American worker. Moreover, this tax hike must be implemented immediately and be permanent. Under high-cost assumptions, the situation is worse: Payroll taxes need to be raised by 58 percent, meaning that typical workers will have to surrender seven more cents per dollar earned to the Old Age Survivors and Disability Insurance System (OASDI).

The true size of Social Security's fiscal problem is more than twice as large as the system's Trustees are publicly acknowledging in their Trustees' Report. The reason is that the Trustees have instructed the actuaries to consider benefits and taxes over only the next seventy-five years. Although seventy-five years seems like a long time, there are huge deficits looming in years 76 and beyond. In systematically ignoring those longer-term shortfalls, the Trustees are dramatically understating the true dimensions of the long-run revenue shortfall.

In addition to appreciating the Social Security actuaries' assessment of the system's true long-run solvency, it's important to know how they are arriving at their projections.