Social Security is financed through a pay-as-you-go system, which means that current workers’ Social Security taxes are used to pay benefits for current retirees … Real reform – especially with respect to Social Security – must reflect demographic reality.
This statement may have been true 30 years ago but as Sita Nataraj and John Shoven noted:
In order to ease the burden on workers during the retirement of the baby boom generation, the 1983 Social Security Reforms set payroll taxes above the level needed to pay current benefits, thus partially prefunding the baby boomers' retirement. The military and civil service retirement programs followed suit in the mid-1980s and switched from pay-as-you-go financing to funded systems. The excess income generated by these retirement programs was held in the federal trust funds, which have accumulated almost $3 trillion since the reforms took place.
In other words, we did have real reform in 1983. Nataraj and Shoven, however, caution that focusing on the unified budget may have led the government to reduce taxes and increase spending such as we did during the Presidency of George W. Bush. Funny thing – Congressman Ryan wants to cut income taxes even further.
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