Rising Debt Periodic Large Level & Interest One-Time Payments Charges
Entitlement Spending
Social Security
Note: *denotes F2010 net income / net loss of respective programs, data per White House OMB. 1) Medicare and Social Security net loss
excludes Trust Fund interest income. 2) TARP net loss includes proceeds from sale of warrants. TARP is Troubled Asset Relief Program; ARRA
KP is American Recovery & Reinvestment Act programs. (@)E) www.kpcb.com USA Inc. | Income Statement Drilldown 129
Social Security: In Good Shape Now, Yet Challenged in Future
by Aging Population
e Social Insurance Program Created in 1935 — During height of the Great Depression to help elderly (65+*) and disabled people avoid poverty.
e Pay-as-You-Go Funding — Social Security taxes deducted from current payrolls to pay out to current eligible recipients of Social Security.
e For Most of its 8 Decades (1935-1970; 1985 - 2009), Annual Social Security Payments Have Been Funded by Annual Social Security Taxes — However, based on estimates from Congressional Budget Office (CBO), beginning in 2016 (or earlier), Social Security will begin running an annual deficit as payments exceed taxes (at unchanged flat tax rate of 12.4%' of annual gross wages) — this is a problem!
e Social Security Has Been Struck by Annual Deficit Crisis Before — From 1975 to 1981, Social Security expenses exceeded revenue every year, which caused a 45% reduction in the Social Security Trust Fund balance. Legislation recommended by the Greenspan Commission in 1983 reduced average benefits by ~5%? and raised social insurance tax rates for individuals by ~2.3%.? But the Greenspan Commission fix will run out soon as Social Security turns to operating loss in 2016.
Note: *Early retirees (62+) could receive partial benefits between 62 and 65. 1) 6.2% taxes paid by employees and matched by employers on gross wages up to
but not exceeding the Social Security wage base of ~$100K; 2) total benefit cuts included $27B savings from benefit taxation for the wealthy and $66B savings
from delay in cost of living adjustments over 1984-1989; 3) average increase in entitlement payroll tax rates between 1982 and 1988, includes Medicare payroll
KP taxes, per estimates from CBO. Source: Social Security Administration. (@E) www.kpcb.com USA Inc. | Income Statement Drilldown 130
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