NEW YORK (MainStreet) — The U.S. would need to institute an immediate and permanent payroll tax increase of 1.6 percentage points to keep the Social Security system solvent for the next 75 years, according a new report from the Congressional Budget Office released Friday.
The report estimates that about 56 million people will receive Social Security benefits this year: About 69% of this estimate is retired workers, their spouses and children, while another 12% are survivors of deceased workers.
Payouts to these beneficiaries during the course of this year are expected to total $733 billion, a figure that represents one fifth of the federal budget. This is potentially problematic, since the standard lines of revenue that fund the system – payroll taxes and income taxes on benefits funneled into two separate trust funds – are estimated to only reach $687 billion in 2011.
According to the CBO, last year was the first in which total tax revenue plus interest accumulated in the trusts did not cover the payout of benefits … and the gap is only going to widen. During the next five years, outlays are estimated to be about 5% greater than the sources of revenue.
However, the report says, as more members of the baby boomer generation http://www.mainstreet.com/article/retirement/retiring-boomers-dont-count-social-security (those born between 1946 and 1964) enter retirement, outlays will increase relative to the size of the economy, whereas tax revenues will remain at an almost constant share of the economy.
“As a result, the shortfall will begin to grow around 2017,” the CBO said.
The CBO said that it expects the disability insurance trust to be tapped by 2017 and that the old-age and survivors trust fund to be exhausted in 2040, unless steps are taken to increase the revenue stream going into each.
How could the government account for the widening gap? Find out in MainStreet’s look at Social Security.