Security tax revenues will be insufficient to paycurrent benefits as early as the year 2013. By 2020 tax revenues plusinterest on the Trust Funds will no longer be adequate to pay for promisedbenefits. As more and more of this generation reaches retirement age,Social Security expenditures rise sharply. By the year 2030, SocialSecurity outlays will have completely exhausted the Trust Funds andcurrent revenues will be short of expenditures by about 2 percent of theannual gross domestic product. In order to meet such expenditures withoutcutting benefits, the Trustees estimate that the payroll tax would have torise from the present 12.4 percent (half on employer and employee) to 19percent. In a recent Cato Institute paper, William Shipman of State Street GlobalAdvisors estimates that a worker born in 1970, investing all of his or herpayroll taxes in stocks, would be able to retire in 2035 on $11,729 permonth (in 1995 dollars), compared to an estimated Social Security benefitof $1,908. For this reason, there is a growing consensus that at least foryounger workers there needs to be an alternative to Social Security. Thiswould necessarily require some movement in the direction of privatization. Rep. John Porter, R-Ill., and Sen. Bob Kerrey, D-Neb., have suggestedpartially privatizing Social Security by cutting the payroll tax rate by1.5 to 2 percentage points and requiring that the tax savings be investedin a form of individual retirement account. The World Bank now urges developing countries to adopt Chilean-stylepension systems. In a 1994 report, "Averting the Old Age Crisis," the banknoted the positive impact of private pensions on saving, capitalformation, investment and economic growth. Also, by shifting from apension system in which people had no confidence to one that is fullyfunded, the effect is to actually reduce the burden of payroll taxes. Tworecent studies have looked at the potential gains to the United Statesfrom switchin...
