SOCIAL SECURITY

Office of the Chief Actuary

July 2, 2009

The Honorable Robert Wexler
House of Representatives
Washington, D.C. 20515

Dear Mr. Wexler:

As you requested in your letter of April 28, 2009, our team of actuaries and economists in the Office of the Chief Actuary has produced an estimate of the effect on the financial status of the Social Security program of the Social Security Forever Act of 2009, H.R. 1863, which was introduced in the 111th Congress on April 1, 2009. The bill would apply a 6-percent tax on all Social Security (OASDI) covered earnings over the current-law taxable maximum amount. We estimate that enactment of this bill would reduce the long-range OASDI actuarial deficit by 1.12 percent of taxable payroll, from the estimated deficit of 2.00 percent of payroll under present law to a deficit of 0.88 with enactment of the bill. Thus, this bill would eliminate over one half of the projected deficit for the OASDI program over the next 75 years under the intermediate assumptions of the 2009 Trustees Report.

Description of Proposal

This bill would maintain the current-law contribution and benefit base (taxable maximum amount), up to which OASDI covered earnings are currently taxed at a total rate of 12.4 percent. The bill would subject covered earnings above the contribution and benefit base to a total 6- percent payroll tax rate. This rate would be 3 percent each for employees and employers, and 6 percent for self-employment earnings. These earnings above the current-law base would not be used for the purpose of computing OASDI monthly benefit amounts. The effective date for this bill is 3 months after the date of enactment. For the purposes of this analysis, we assume this bill would be effective for calendar years 2010 and later.

Long-Range Financial Effect of Bill

Enactment of this bill would substantially improve the long-range actuarial status of the OASDI program, reducing the actuarial deficit by an estimated 1.12 percent of the current-law taxable payroll. The projected year that the combined OASDI Trust Fund would become exhausted would be extended 16 years, from 2037 to 2053. These estimates are based on the intermediate assumptions of the 2009 Trustees Report. These estimates reflect an expected behavioral response to the additional payroll tax that would reduce, slightly, the amount of earnings reported by employers, employees, and self employed.

Table 1 (enclosed) provides detailed estimates of the effects of the bill on the financial status of the Social Security OASDI program. The table includes individual-year estimates of:

• The annual income rates, annual cost rates, and annual balance for the OASDI program under the Bill, expressed as a percent of current-law taxable payroll;
• The combined OASI and DI Trust Fund ratio under the proposal;
• The annual balance under current law; and
• The change in the annual balance that is estimated to result from enactment of the bill.

If we may be of any further assistance regarding this bill or any other matter, please let me know.

	Sincerely,
	Stephen C. Goss Chief Actuary

Enclosures

Solvency proposals