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Thursday, October 1, 2009

Social Security in a nut shell: Part II

Monday we spoke of the increase in longevity that is stressing the Social Security system. Today we speak of the demographic change.

Problem 2: Declining worker-to-retiree ratio.
We are living longer and having fewer children. Back in 1950 there were 16 people working for every person retired. So, the pot of money that could be extracted to pay Mrs. McGillicuddy her Social Security was vast and so only a small sum needed to be taxed from each worker. The original tax was 1% on both employer and employee from 1937-49. Now it is 7.65% on both, with self-employed people paying the whole 15.3% whack themselves. It is estimated that by 2030 there will be 34 people retired and collecting Social Security for every 100 people between the ages of 19 and 64 who are working. That is a far cry from a 16-to-1 ratio like in 1950. So do we continue to take more and more from fewer and fewer of tomorrow's workers to fund longer retirements? If your answer is "yes" then hit the floor and give me 10 push ups.

Solution: Massive immigration or increase the birth rate. Neither of which are likely to happen. So once again we come back to facing less benefits or taxing the economy out of productive existence.

1 comment:

Anonymous said...

Barro has a good op-ed.