Why everything you think you know about the Social Security Crisis is wrong.

[Hannah Bell]

Seems like something about Social Security in the news every month. There seems to be general agreement that SS has a "problem," perhaps it's even in "crisis."

We're told we'll need to start dipping into the Trust Fund in 2017. By 2041 the Trust Fund will be exhausted, & SS won't be able to pay the benefits they promised.

Maybe we won't even have enough money in the general budget to repay the Trust Fund! Both Bush & Cheney have implied as much.

So people argue about solutions. Private accounts? Increase payroll taxes? Lift the cap & get the high earners to pay more? Everyone has their favorite fix, & sometimes the discussions get quite involved - into the minutia of stock returns, management fees, interest on Treasury Bonds, & so on. Gives you the feeling you have to be a financial whiz to understand what's going on.

I'll save you all this trouble. The solution is - do nothing. Absolutely nothing. "Do nothing" is the best solution to a problem that doesn't exist.

"What?" you say. "Doesn't exist? Of course it exists, everyone agrees it exists! They talk about it on TV, in the paper, Dems talk about it, Pugs talk about it - how could it not exist?"

These are Orwellian times. The first thing you should do, when people try to sell you economic predictions, is to check their figures.

In the case of SS, it's easy to do. All the figures under discussion come from one place - the SS Administration's yearly Trustees' report. Their reports on the web.

Each year the Trustees make 3 forecasts charting the predicted state of SS financing out 75 years into the future. These forecasts are based on assumptions about future population, longevity, productivity, GDP & so on.

There's the "Low-Cost Forecast". This is the best-case scenario - the best they expect the economy to be able to do.

There's the "Intermediate Forecast." This is supposedly what's most LIKELY to happen, & all the numbers you hear in the media come from this forecast.

Finally, there's the "High-Cost Forecast." This is the worst-case scenario; the worst the economy could do.

So: three forecasts, & the intermediate forecast is where the dire predictions come from.

OK, so what?

Bruce Webb has been monitoring the Trustees' forecasts for 11 years, & he's discovered a startling fact. Nearly every year, the real numbers hit the LOW-COST FORECAST. That's right. Real economic performance most closely matches the Trustees' BEST-CASE scenario.

And what result does the low-cost forecast give us?

Seventy-five years of fully-funded SS plus a Trust Fund surplus in the trillions.

The table on his web page isn't formatted well, so I'll reproduce the essence here: The Trustees' growth forecasts for the next year under the Intermediate & Low-cost assumptions, then the actual percentage growth of that year:

1997

Int-Cost Forecst 2.5%
Low-cost Forecst 3.2%*
Actual 3.8% (+.6 better than low-cost)

1998

Int-Cost Forecst 2.5
Low-cost Forecst 3.1*
Actual 3.9 (+.8)

1999

Int-Cost Forecst 2.6
Low-cost Forecst 3.4*
Actual 4.0 (+.6)

2000

Int-Cost Forecst 3.5
Low-cost Forecst 3.9*
Actual 5.1 (+1.2)

2001

Int-Cost Forecst 3.1*
Low-cost Forecst 3.5
Actual 1.0 (-2.0 worse than int-cost)

2002

Int-Cost Forecst .7
Low-cost Forecst 1.6*
Actual 2.4 (+.9)

2003

Int-Cost Forecst 2.9*
Low-cost Forecst 3.8
Actual 3.1 (+.2)

2004

Int-Cost Forecst 4.4*
Low-cost Forecst 4.9
Actual 4.4 ()

2005

Int-Cost Forecst 3.6*
Low-cost Forecst 3.9
Actual 3.6 ()

2006

Int-Cost Forecst 3.4
Low-cost Forecst 3.8*
Actual 4.7 (+.4)

2007

Int-Cost Forecst 2.6*
Low-cost Forecst 3.4
Actual 2.2 (Prelim) (-.4)

Average Int-Cost 2.89
Average Low-cost 3.5*
Average Actual 3.47


There you have it. In 6/11 years, the real numbers come in BETTER THAN the low-cost forecast (the supposedly "optimistic" one).

In 1/11 years, the real numbers come in lower than the optimistic forecast, but better than the intermediate forecast.

In 2/11 years, the real numbers match the intermediate forecast.

In 2/11 years, the real numbers are lower than the intermediate forecast (one of these years being the anomalous year of 9/11).

On average, the real numbers essentially match the optimistic forecast.

This means fully funded SS 75 years out, & trillions of surplus in the Trust Fund.

The implication being, we may be paying TOO MUCH payroll tax.

So forget the private accounts v. increased payroll tax debate. Instead, ask yourself -

Why isn't the media analyzing the Trustees' reports & bringing you this information? Why do all the news accounts discuss the "shortfall" as if it were set-in-stone gospel, certain to occur?

Why don't they even tell you that these are 75-year economic forecasts, & discuss the likely accuracy of 75-year economic forecasts?

Why hasn't anyone in Congress noticed that the Trustees, on average, can't accurately forecast the NEXT year, let alone the next 75? Don't our reps have staffers whose job it is to follow these things? Why aren't they minding our shop? Why do they all seem to take the existence of the "problem" for granted?

I'll tell you what I think. Eleven years of economic data comes in too suspiciously close to the low-cost forecast. I think the low-cost forecast represents the real forecast, and the intermediate forecast in ratcheted under that to produce the crisis scenario certain actors wish to sell us.

I believe we're being conned, & that some in the media & in Congress know we're being conned.

The Bruce Web (has links to all the Trustees Reports & other data).

http://bruceweb.blogspot.com/

[Juche]

1. Does this reflect FICA taxes

It is hard for me to find data that only involves SS revenue and not SS & medicare (which has no cap). But alot of the economic growth in the US has been going to the top 10%.



There are tons of charts like that. Since SS tax is capped at about 100k, does the increased economic growth matter if the higher incomes are just going to the wealthiest americans, who don't pay SS taxes on anything above 100k?

In 1993 it was $393 billion in SS revenue.

http://www.urban.org/url.cfm?ID=1000540&renderforprint=1&CFID=30587614&CFTOKEN=48756481

It was $553 billion in 2004.

http://www.aarp.org/research/socialsecurity/general/aresearch-import-352-FS39R.html

$6.38 trillion GDP in 1993

http://www.theodora.com/wfb/1995/united_states/united_states_economy.html

Ah fuck, I've lost interest in googling all these stats.

Point is, is this economic growth going to workers who will pay more FICA taxes? If we get 4% annual GDP growth but all the growth goes to helping people who were making 300k a year start making 400k a year, FICA taxes (outside of medicare) won't increase.

[Hannah Bell]

3. The Trustees Reports are the only authoritative source of data for SS.

Nothing to do with Medicare/Medicaid. They break out all the numbers.

Here's a link to the optimistic projection, showing the Trust Fund surplus under optimistic assumptions, 2005. The Bruce Web has links to all the reports, or just go the SS website.

Social Security Administration, 2005 Trustees Report, Table VI.F7

http://ssa.gov/OACT/TR/TR05/VI_OASDHI_dollars.html#wp140103

[Hannah Bell]

4. Go to that link.

Scroll to Table VI.F7.—Operations of the Combined OASI and DI Trust Funds,
in Constant 2005 Dollars,1 Calendar Years 2005-80.

Look at column "assets at end of year".

The first section is the intermediate forecast. It ends at 2040 with nothing in the TF for 2041.

The next section is low-cost. It ends in 2080 with 17 trillion in the Trust Fund.

This is Social Security & Social Security Disability. OASDI.

You can go through 11 years of reports & compare the forecasts to the actuals, or just check a few years to verify he's not lying to you. (He's not.)

Low-cost is the most accurate prediction over these last 11 years.

[FogerRox]

13. Even easier than that, the US economy grew at 3.5% over 100 yrs

at that rate SS is in surplus for another 100yrs.

The low cost scenario is based on 2.5% growth.......


http://www.dailykos.com/story/2007/4/24/16844/3334/337/327131

[Hannah Bell]

15. Yep. And the intermediate scenarios have been based, over the

last ten years, on 75 years of growth at 1.7-1.9%.

Growth during the 10 years of the Great Depression = 1.8.

There are many ways to say "They're lying."

[Hannah Bell]

11. I realized I didn't really answer your question.

It's true the growth $ have been going to the top.

It's true that if workers took more of the growth $, this would improve SS's status even more.

But, using even current low estimates of future growth, & keeping FICa structured just like it is today - no increases in % taxed - SS is solvent. By the Trustees own low-cost projections, which have mirrored real performance these last 11 years.

Working people should push for a bigger share of the pie, not to take a piece (SS) of the pie away.

[ColbertWatcher]

2. The GOP support 100 years in Iraq, but...

...only 30-40 more for Social Security?

[DemReadingDU]

5. Paul Krugman has had a couple blog postings recently about S.S.

3/25/08 Look and feel 15 years younger!
The latest report of the Social Security Trustees is out. I think the key message is what has happened to the estimate of actuarial balance — the difference between projected outlays and projected revenues over the next 75 years. This is the thing that’s supposed to get steadily worse as time goes by, as the 75-year window contains ever fewer years in which the baby boomers are in the work force, paying payroll taxes, and ever more years when the boomers are out of the work force and collecting benefits.

In fact, however, the actuarial balance has been improving rather than worsening. It’s now better than it’s been since 1993. What this tells us is that projections made in the mid-to-late 1990s were, in the light of subsequent revisions, way too pessimistic.

Moral: Social Security’s financial problem is relatively minor. It doesn’t deserve the emphasis it receives from most pundits.

http://krugman.blogs.nytimes.com/2008/03/25/look-and-feel-15-years-younger/



3/28/08 About the Social Security trust fund
I see from comments on an earlier post, plus some of the incoming links, that the whole “there is no trust fund, so the system will be in crisis in 2017″ thing is still out there. So I’m just going to reprint what I wrote about this three years ago:

http://krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund/


2005 - Confusions about Social Security by Paul Krugman
http://www.truthout.org/docs_05/010305F.shtml
http://www.truthout.org/mm_01/5.010305F.pdf

[eridani]

6. I work at a large corporation, and our retirement benefits officer sez exactly the same thing n/t

[TacticalPeek]

7. Someone should roll up those reports

and whack the editors and producers on the nose with them.

[Jim__]

8. The corporate media reports all the news that corporations want out there.

And very little else.

[catzies]

18. That's a great line and I'm stealing it. Thanks.

"The corporate media reports all the news that corporations want out there and very little else." QFT.

[Warpy]

9. The only crisis in social security

is that Congress will get to a point where they can no longer rob 40% of the overpayments to fudge the books on their tax giveaways to fat cat contributors.

Otherwise, it's solvent. It was always designed to be pay as you go. Boomers were robbed by Ronald Reagan, who picked their pockets by jacking up the social security premiums six times as a back door tax increase on the poorest workers.

[DCKit]

10. It makes sense in light of the efforts to terrorize us into privatizing SS.

Then it could be raided in the open markets of Wall Street.

I'm not much of a CT, but this has Republican't written all over it.

[Juche]

12. exactly

If the neocons privatize SS they accomplish 3 things


A multi trillion dollar handout to wall street who gets to manage these funds

A 'starve the beast' agenda since people will end up putting SS private money into private accounts instead of paying for the current elderly. I read if Bush's SS privatize platform had succeeded, SS shortfalls would be $200 billion a year because people wouldn't be putting their SS money into paying for current retirees

A death knell to the new deal



None of the reasons have anything to do with helping the American people. Just killing the new deal, handouts to wall street and running up gigantic deficits in the hope that the gov will cut social programs to fix the deficit.

[joeglow3]

14. I would like to see the government invest the money better

Instead of spending it and writing an IOU at an okay rate, invest it in a total global fund and get returns over the long term that greatly exceed what they currently get.

[Hannah Bell]

16. Why would you want the government to get involved in private

markets?

[truedelphi]

17. Something that is never mentioned is all of the baby boomers that are keeling

Over from cancers of various kinds.

I have buried far more of my friends tht my parents did when they were my age.

One friend was a heavy smoker, but still.

The environment is pretty creepy in terms of various ways we might get done in. Give the baby boomers another ten years, and there might not be a lot of us left.

[seasat]

19. Kevin Drum had an interesting observation, illegal immigration improves SS outlook

He noted in his blog that the outlook was improving and one of the reasons is:

Translation: instead of just pulling a net number out of a hat, the trustees built a model that estimated the actual demographic characteristics of both immigrants and emigrants. And guess what?

* Illegal immigrants tend to skew young. This benefits the system.

* Young people have more children than older people. This benefits the system.

* Some illegal immigrants pay taxes for a few years and then leave. This benefits the system.

Bottom line: "This year's report results in <...> a substantial increase in the number of working-age individuals contributing payroll taxes, but a relatively smaller increase in the number of retirement-age individuals receiving benefits in the latter half of the long-range period." Give or take a bit, it turns out that this shores up the Social Security system to the tune of around $13 billion per year. Thanks, illegal immigrants!

I agree with your OP, that the best thing to do with social security is leave it alone. The "potential demise" of social security is a myth promoted by Repugs to attempt to kill a successful government program through privatization. Reforming health care making it fair and affordable for everyone is a more important goal than tinkering with Social Security.

[sendero]

20. The only problem ..

.. with this report is that it makes the erroneous assumption that the "trust fund" is actually money.

It's not, it is nothing more than a promise that the Federal gov't will tax to get the money in the future.

So, we're spending the money when we have several workers per retiree, and we'll tax to get it back when there are 2-3 workers per retiree.

No sane person really believes that they will be getting benefits ANYWHERE NEAR the current benefits. It is simply not possible.

[sugerdady87]

21. failures of SS is because

Collective action on such a large scale always fail.

[NMDemDist2]

22. Oh? examples please

and BTW welcome to DU

:hi:

[sugerdady87]

23. yea

Im reading alot in this section and many others, no offense, but alot of the arguements seem to be heavily based on emotion rather then actual reason. Always the rich evil someone beating up poor little homeless guy...

[Hannah Bell]

24. I don't know what you're talking about. The argument is based

on the numbers in the SS Trustees' Reports. You can check them for yourself. The only "emotion" is the heavy breathing on the right about the phoney "crisis".

Bush predicted it would arrive in the 80's, back when he was running for office in Texas. He was wrong then, wrong now.

[sugerdady87]

25. ...

Seriously, you posted a link of the previous cost of SS, not what is expected. How many individuals access SS now?

[Hannah Bell]

26. No. I think you don't understand how the calculations about SS

are made. The link is to the past SS reports to show that their past predictions, even about the next year, were wrong, & suspiciously wrong, i.e. the "optimistic forecast" was right on average.

as to the demographics of SS, that's in the Trustees Reports. among the assumptions they make in their intermediate forecasts: 75 years of Depression-era growth & a huge drop in immigration - assumptions found in no other government (or business) economic forecasts.

The scare story is that in the future, there will only be ~2 workers for every retiree. Japan & parts of Europe are already there, & they're able to support their elderly.

How many workers does it take to produce a acre of grain? In the middle ages, maybe 50. In 1900, maybe 25. Today, maybe 3. The miracle of productivity, you know? The only question is, who gets rewarded for those productivity gains, capital or labor?

With or without SS, old people will have to live somewhere, eat food, & wear clothes. If the economy produces enough houses, food, & clothes to make it possible for old people to have them, then SS works.

If the economy is so weak that it can no longer produce enough goods for its people, & we must throw old people into the street to save ourselves, then SS doesn't work, & nothing else does either.

[NMDemDist2]

28. that's still not an example of "Collective action on such a large scale always fail." (sic)

SS is just like insurance. I don't know about you, but I've been paying lots of cash into it for 35 years.

[seasat]

30. The poverty rate among the elderly was cut by over half thanks to SS

I'd call that a spectacular success. The problem was that we moved from an agrarian society to an urban industrial society. Under the agrarian society, the family remained in the same home and area. However, the same was not possible under the industrial society. A program like SS was needed to prevent the elderly from falling into extreme poverty and it has done that very well.

[notesdev]

27. Check the facts then the math

The trust fund doesn't exist. It's a file cabinet full of IOUs locked away somewhere in West Virginia. Congress has been looting it for decades.

The economy for the past 10 years has been supported by bubbles; first the internet bubble, then the housing bubble. The housing bubble is now exploding spectacularly; and just this year the baby boomers have begun to withdraw.

Furthermore there is the erosion of the value of the payout vs. the actual cost of living; the government's blatantly fraudulent inflation numbers are the basis of COLA adjustments; but they don't put things like food and fuel - the primary current drivers of inflation - into their calculation.

If you handed in tax returns using the government's accounting methods, it would arrest you.

[Hannah Bell]

29. I don't disagree on bubbles, but that's a problem of the entire economy,

not SS in particular. Ditto with the CPI. Food & fuel are included in the CPI, anyway. The rest is right-wing talking points.