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Social Security

A Wide Range of Policy Bundles Can Stabilize Federal Debt while Growing the Economy

A Wide Range of Policy Bundles Can Stabilize Federal Debt while Growing the Economy

Debt ceiling debates would become less frequent if Congress adopted fiscal measures that limited the growth of federal government debt relative to the size of the economy. Without changes in fiscal policy, we project that the debt-to-GDP ratio will grow from 100 percent in 2024 to 190 percent in 2050. Contrary to conventional thinking, there exists a wide range of policy options that can reduce the growth of debt while growing the economy.

W2022-2 Fiscal and Generational Imbalances in the U.S. Federal Budget

The U.S. Fiscal Imbalance: June 2022

The U.S. Fiscal Imbalance: June 2022

We estimate that the U.S. federal government faces a permanent fiscal imbalance equal to over 10 percent of all future GDP under current law where future federal spending outpaces tax and related receipts. Federal government debt will climb to 236 percent of GDP by 2050 and to over 800 percent of GDP by year 2095 (within 75 years).

Effects of President Biden’s Unauthorized Immigrant Legalization Proposal on SNAP and Payroll Tax

Effects of President Biden’s Unauthorized Immigrant Legalization Proposal on SNAP and Payroll Tax

PWBM projects that the legalization provisions of the U.S. Citizenship Act proposed by President Biden would increase per capita spending on the Supplemental Nutrition Assistance Program (SNAP) by 1.2 percent in 2030 and 0.8 percent 2050 relative to the current policy baseline. Per capita payroll taxes would decrease by 0.1 percent relative to the current policy baseline.

Interactive Tool: Options to Reduce the National Debt

This interactive page presents estimated budgetary, economic, and distributional effects for a wide array of policies and policy packages that would reduce the federal debt.

PWBM Budget Contest: A Flat Benefit for Social Security

PWBM Budget Contest: A Flat Benefit for Social Security

As part of PWBM’s “Democratizing the Budget Contest,” Andrew Biggs, Ph.D. proposed a package of Social Security reforms centered around gradually transitioning the program to a flat benefit for new retirees. PWBM projects that this proposal would reduce the program’s conventional 75-year imbalance by 2.44 percent of taxable payroll, leaving a remaining imbalance of 0.8 percent of current law taxable payroll. The proposal would decrease GDP by 0.6 percent in 2030 while increasing GDP by 0.6 percent in 2050.

Dynamic Distributional Analysis of the Biden Platform

Dynamic Distributional Analysis of the Biden Platform

PWBM uses dynamic distributional analysis to evaluate the effects of the Biden platform on different age and income groups. We find that working-age individuals in the bottom 40 percent of taxable income benefit the most due to expanded health insurance, increases in housing subsidies, and lower cost of prescriptions in the Biden platform, while young, high-income individuals and wealthy retirees see net losses due to tax increases and lower returns on their savings.

PWBM Analysis of the Biden Platform

PWBM Analysis of the Biden Platform

Presidential candidate Joe Biden’s campaign has released a substantial list of policy proposals. PWBM finds that over the 10-year budget window 2021 – 2030, the Biden platform would raise $3.375 trillion in additional tax revenue and increase spending by $5.37 trillion. Including macroeconomic and health effects, by 2050 the Biden platform would decrease the federal debt by 6.1 percent and increase GDP by 0.8 percent relative to current law. Almost 80 percent of the increase in taxes under the Biden tax plan would fall on the top 1 percent of the income distribution.

The Impact of the Coronavirus Pandemic on Social Security’s Finances

The Impact of the Coronavirus Pandemic on Social Security’s Finances

PWBM projects that the ongoing coronavirus pandemic reduces the OASDI trust fund depletion date by four years, from 2036 to 2032, under the “U-shaped” recession projected by PWBM. If the recovery is faster (“V-shaped”), the trust depletion date falls by two years, from 2036 to 2034. The conventionally-measured OASDI 75-year actuarial balance worsens between 0.07 and 0.13 percent of future payroll.

President Trump’s Payroll Tax Holiday: Alternative Distributional Analysis

We expand our previous analysis of President Trump’s proposed payroll tax holiday by considering two scenarios for how the employer side of the tax cut would be distributed: either to the full benefit of business owners and corporate equity holders (“profits rise”) or to the full benefit of workers (“wages rise”). When profits rise, the top 1 percent of families by income receive about 29 percent of the total payroll tax cut, compared to about 4 percent of the total cut when wages rise.

President Trump’s Payroll Tax Holiday: Budgetary, Distributional, and Economic Effects

President Trump’s Payroll Tax Holiday: Budgetary, Distributional, and Economic Effects
  • In response to the economic effects of the coronavirus, President Trump has proposed a payroll tax holiday that would temporarily eliminate all Social Security and Medicare payroll taxes through December 31st, 2020. PWBM projects that this payroll tax holiday would cost $807 billion if the holiday were run from April 1 through December 31, 2020.

  • Households in the bottom 20 percent of the income distribution—those households with the highest willingness to spend their tax savings—would receive about 2 percent of the total tax cut and only a third of these households would see any tax savings due to low levels of taxable income. Tax savings would also accumulate slowly over time relative to direct government spending.

  • PWBM estimates that eliminating payroll taxes would have little net impact on the economy in the short run and would reduce the size of the economy by 0.1 percent in 2030 and 0.2 percent in 2050 due to additional debt.

Analysis of the Sanders Plan for Social Security

Analysis of the Sanders Plan for Social Security
  • Democratic presidential candidate Senator Bernie Sanders has proposed changes to Social Security policy that increase benefits for low earners and increase program income by levying “donut hole” payroll taxes on those with earnings above $250,000 and by dedicating proceeds from a new tax on high investment income to the program.

  • The plan would reduce the conventionally-measured long-range imbalance by 2.3 percent of taxable payroll, leaving an imbalance of 1.2 percent of taxable payroll.

  • The plan would decrease GDP by 0.9 percent in 2030 and 1.0 percent in 2050 as a result of reduced capital formation due to the increased tax on investment as well as the new type of payroll tax (the “donut hole” tax) which distorts labor supply by more than the standard payroll tax.

Analysis of the Biden Plan for Social Security

Analysis of the Biden Plan for Social Security
  • Democratic presidential candidate Joe Biden has proposed changes to Social Security policy that would increase benefits, especially for low earners, while raising more revenues from high-earning individuals.

  • The plan would reduce the conventionally-measured long-range imbalance by 1.5 percent of taxable payroll, leaving an imbalance of 2.0 percent of taxable payroll.

  • The plan would decrease GDP by 0.6 percent in 2030 and 0.8 percent in 2050 due to a reduction in capital formation as well as a new type of payroll tax (the “donut hole” tax) that distorts labor supply by more than the standard payroll tax.

Policy Options: Raising the Social Security Taxable Maximum

We estimate the budgetary, economic and distributional effects of raising the Social Security taxable maximum to $300,000 starting on January 1st, 2021. We project that it would raise $1.2 trillion of additional revenue on a conventional basis over the 10-year budget window and lower GDP 1.7 percent by 2050. Families in the top 10 percent of the income distribution would bear 93 percent of the overall burden of this tax increase.

Social Security Projections: Competing Baselines

Social Security Projections: Competing Baselines
  • The Social Security Trust Fund is projected to be depleted between 2032 - 2035, depending on various assumptions.

  • Upon Trust Fund depletion, Social Security’s “payable” benefits--corresponding to a precise “current law” definition and based on annual payroll taxes collected in each year-- will equal between 70 - 75 percent of the “scheduled” benefits, based on the statutory formulas currently used to determine benefit levels (“current policy”).

  • Since Social Security’s financial projections typically extend beyond the depletion date, a modeling assumption must be made for benefit payments (“payable” or “scheduled,” “current law” or “current policy”) after Trust Fund depletion when projecting the impact of potential Social Security reforms on the economy. This decision plays a major role in projections of different potential reforms on the economy.

The Social Security 2100 Act: Updated Analysis of Effects on Social Security Finances and the Economy

The Social Security 2100 Act: Updated Analysis of Effects on Social Security Finances and the Economy
  • In this update to our analysis, we project that the Social Security 2100 Act would eliminate Social Security’s conventional long-range imbalance while reducing the program’s short-range imbalance on a dynamic basis.

  • The Act reduces annual shortfalls that would otherwise add to national deficits under current policy, but at the cost of new tax distortions. In the short run, the two effects nearly offset in the macroeconomy. We project that the Act decreases GDP by 0.7 percent by 2029 and decreases GDP by 2.7 percent by 2049.

  • PWBM previously analyzed the Social Security 2100 bill in March of this year. Since that time, PWBM has made enhancements to both our Social Security and our dynamic overlapping generations equilibrium models. These enhancements were made as part of our ongoing process to continually develop the most flexible and dependable model possible.

The Social Security 2100 Act: Who Wins and Who Loses?

The Social Security 2100 Act: Who Wins and Who Loses?

Using PWBM’s new dynamic distributional analysis, we find that the Social Security 2100 Act benefits wealthy, retired households at the expense of young, high-income households.

Seven U.S. Economic Models Project Rapid Growth of Federal Debt

At the National Tax Association Spring Symposium, PWBM participated in a roundtable with other economic modelers. All modelers showed the results of cutting Social Security benefits by one-third in 2031. All models found that even with a benefit cut, by mid-century the U.S. still has a sizable debt-to-GDP ratio.

W2019-1 Prospects for U.S. Labor Productivity Growth: What the Penn-Wharton Budget Model’s Microsimulation Reveals

Analysis of Fiscal Therapy: Conventional and Dynamic Estimates

PWBM projects that the proposals in Fiscal Therapy by William Gale would reduce the debt to-GDP ratio from 188 percent to 17 percent in 2050 and increase long-run economic output by 7 percent.