S OCIAL S ECURITY Origins: New Deal Contributors Employee: 6.2% Employer: 6.2% Taxable Maximum: $90,000 Contribute for 10 years to receive benefits HOW DOES IT WORK? “Pay as you go” system

WHO GETS IT? Recipients: 62.8% Retired 18.4% Survivor Benefits 13% Disabled 5.8% Non working spouses

S OCIAL S ECURITY T RUST F UND Surplus goes into the trust fund 2005: 1.7 trillion in trust fund 155 billion added in 2005 Government borrows 150 billion a year (IOUs in fund)

P ROBLEMS Baby Boomers Living longer Fewer childbirths workers/1 retiree workers/1 retiree

A MERICA ’ S P OPULATION IS A GING P OPULATION AGE 65 AND O VER Source: Social Security and Medicare Trustees’ Report, April 2007 Year Percentage of Population Aged 65 and Over

A MERICANS ARE LIVING LONGER AND HAVING FEWER CHILDREN Consequently, fewer workers are available to support each Social Security recipient 1960: 5.1 to 1 Today: 3.3 to : 2.1 to 1 Source: Social Security Administration, April 2007

P ROBLEM 2015 Payouts exceed income Need to tap into the trust fund Govt. borrows $150 billion a year 2037/2052: Trust Fund depleted Annual collections only pay for 74% of benefits

S OCIAL S ECURITY AND M EDICARE P ART A C UMULATIVE C ASH S URPLUSES AND D EFICITS I N C ONSTANT 2007 D OLLARS —2007 THROUGH 2080 In Billions of Constant 2007 Dollars Calendar Year Source: Social Security Trustees’ Report—April 2007 (Intermediate Projections) $708 Billion: Cumulative Social Security Cash Surplus -$26 Trillion: Cumulative Social Security Cash Deficits -$46 Trillion: Cumulative Medicare Part A Cash Deficits Trillion: Cumulative Social Security and Medicare Part A Cash Deficits

M EDICARE C OSTS S OAR IN THE C OMING D ECADES Calendar Year As a Percentage of GDP General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, 2007

H EALTH C ARE C OSTS ARE R ISING F ASTER T HAN THE E CONOMY Source: Congressional Budget Office, December Year Percentage of GDP Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.) Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—consistent with the assumption used by the Medicare Trustees. All Federal Revenues In Fiscal Year 2006 All Federal Spending In Fiscal Year 2006

P ROPOSED S OLUTIONS Raise Max level from $90,000 to $140,000 Lower shortfall by 43% Raise tax by ½% Lower shortfall by 24% Raise age Lower shortfall by 38% Reduce benefits by 5% Lowers shortfall by 26% Lower benefits for high wage workers Lowers shortfall by 14% Put estate tax into Social Security Fund Lowers shortfall by 75%