Social Security Reform:

Demographic Trends Underlie Long-Term Financing Shortage

T-HEHS-98-43: Published: Nov 20, 1997. Publicly Released: Nov 20, 1997.

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GAO discussed: (1) the demographic trends contributing to the social security financing problem; (2) when the problem will begin to confront the federal government; (3) the alternatives for addressing the problem; and (4) the implications of these alternatives.

GAO noted that: (1) increasing life expectancy and declining fertility rates pose serious challenges not just for the social security system but also for Medicare, Medicaid, the federal budget, and the economy as a whole; (2) the aging of the baby-boom generation will simply accelerate this trend; (3) social security receives more from payroll taxes than it pays out in benefits; (4) this excess revenue is helping build substantial trust fund reserves that are projected to help pay full benefits until 2029, according to social security's intermediate projections; (5) at the same time, this excess revenue helps reduce the overall federal budget deficit but will start to taper off after 2008; (6) in 2012, social security benefit payments are projected to exceed cash revenues, and the federal budget will start to come under considerable strain as the general fund starts to repay funds borrowed from the trust funds; (7) although social security's revenues currently exceed its expenditures, revenues are expected to be about 14 percent less than total projected expenditures over the next 75 years, according to Social Security Administration projections; (8) a variety of benefit reductions and revenue increases within the current program structure could be combined to restore financial balance; (9) some observers believe that the program structure should be reevaluated; (10) reform is necessary, and the sooner it is addressed, the less severe the necessary adjustments will be; (11) any economic growth and improvements in living standards achieved will also mitigate the strains that reform will impose; (12) any course taken will substantially affect both workers and retirees, other sources of retirement income, the income distribution, the federal budget, and even the economy as a whole; and (13) such effects should be well understood in making reforms.

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