Social Security Roller Coaster
Next January, the FICA tax rate (for Social Security and Medicare) is scheduled to rise from 7.15 percent to 7.51 percent, for both employers and employees. It is supposed to rise again in 1990-to 7.65 percent. For an employee with the maximum taxable earnings in 1987 ($43,800) who continues at this level in 1988, the tax increase is $157.68; for an average worker it is about $70. The increased revenues will go entirely to Social Security.</br></br>Five years ago a financial crisis confronted the Social Security program. The trust fund, which pays retirement and survivor benefits, would not have had sufficient money to pay benefits on time late in 1982 if it had not received loans from the disability and hospital funds. And even these loans provided funding for only the next eight months.</br></br>Social Security amendments of 1983 turned the situation around. The fund balance for the two Social Security trust funds has risen steadily. In fact, at the end of 1986, the balance was about $47 billion (approximately three months' benefits).</br></br>In part, solvency was restored (and ensured) by tax-rate increases. The increase previously scheduled for 1985 was advanced to 1984, and 72 percent of the increase scheduled for 1990 was advanced to 1988 (with the remainder left for 1990).</br></br>What is estimated to occur under this accelerated tax schedule? The estimated fund balance, expressed in 1986 dollars (to remove the effects of inflation) rises rapidly and steadily. It reaches the almost inconceivable height of $2.5 trillion in the early 2020s, about 35 years from now. (In dollars of that time, this would be about $11 trillion.) But after this peak, a rapid decline occurs, and the fund is exhausted in 2051.