Comparing the Social Security Shortfall and the Cost of the Bush Tax Cuts

By Kathy Ruffing

Social Security’s trustees recently reported that — over the next 75 years — Social Security will have a shortfall of 2.67 percent of taxable payroll, or 1 percent of Gross Domestic Product (GDP).  That is, raising taxes by an average of 1 percent of GDP could put Social Security on a sound footing over 75 years.  How does that compare with the stakes involved with extending President Bush’s tax cuts?

Bush Tax Cuts

The tax cuts — which Congress enacted in 2001 and 2003 — originally were slated to end after 2010.  Facing a weak economy, President Obama and lawmakers agreed to continue them for two years.  The President has proposed letting the tax cuts expire for single persons making more than $200,000 a year  or married couples earning more than $250,000 a year.

Twice the Revenue Shortfall

The revenue loss over the next 75 years from making all of the Bush tax cuts permanent would be two times the entire Social Security shortfall over that period.  (See figure.)  Indeed, the revenue loss just from extending the tax cuts for upper-income people would be more than two-thirds as large as the Social Security shortfall over the 75-year period.

Let’s be clear:  as we note in our analysis of the trustees’ report, letting the tax cuts expire would not “pay for” fixing Social Security, which has different sources of revenues; conversely, letting them continue would not directly harm Social Security.

But the debate over the tax cuts provides a vivid opportunity to spot inconsistency — and even hypocrisy — among politicians and pundits.

Current Fiscal Environment

Many members of Congress claim that extending the Bush tax cuts would be affordable in the current fiscal environment.  Some of the same members, however, also argue that Social Security’s shortfall constitutes a grave fiscal threat.  The problem is that the high-end tax cuts and the Social Security shortfall are of similar size.  These arguments cannot both be true.Φ

Kathy Ruffing is a Senior Fellow at the Center on Budget and Policy Priorities, specializing in federal budget issues.