Could Social Security Go Broke?

Abstract

This chapter attacks the notion that Social Security could go broke, a claim often used to make the case for privatization. It argues that the Social Security system cannot go bankrupt. Businesses or individuals can go bankrupt when they are legally obligated to make payments, do not have enough money coming in to cover those payments, and have no way to increase their inflow of money. A U.S. government program like Social Security will never be in such a situation. Social Security gets the money it needs to make benefit payments from taxes. If Social Security taxes and benefits get out of balance, either or both can be adjusted by our democratic processes. America will certainly have the capacity to pay the higher taxes projected to be needed in the rather distant future to finance current-formula Social Security benefits. President George W. Bush's economists project that by 2080 the payroll tax will have to rise, raising the total tax burden on the American public by 4 percent of gross domestic product (GDP) to about 31 percent. That is a significant rise, but it is far from impossible as a matter of economics or politics.