"They said there would be no math . . . "
I feel obliged to address the mostly number-free comment thread to Dr. Baker's timely post.
The most recent report on Social Security says the gap between cash income (mainly payroll taxes) and scheduled benefits rises to as much as 1.44 percent of GDP from 2016 to 2080. It actually peaks in 2035 at 1.32%, goes down a bit, then heads up again. All these numbers are strictly cash, abstracted from Trust Fund accounts. The numbers are here (fourth column, under "OASI," which stands for Old Age Survivors Insurance, a.k.a. "Social Security").
To put the number 1.32 percent of GDP in perspective, in terms of GDP for 2008, it is about $190 billion. This is well under the cost of the Bush tax cuts or the increases in the defense budget in the past eight years, and of course much less than the combined effects of those decisions (sic) on the deficit. Moreover, the 1.32 percent doesn't come up on us in the space of eight years, but over nineteen years. By advanced math, you could say it requires average increases of 1.32/19 or .017 percent of GDP a year, starting in 2016.
During the campaign, President Obama proposed to fill any impending shortfall by increasing the payroll tax on high-salary workers. From the table linked above you can plainly see the HI piece -- Medicare -- is over twice as large as the SS shortfall. Moreover, HI is not the whole story. There are other components of Medicare not funded by the payroll tax, and there is Medicaid on top of that. So why is Mr. O getting Overwrought about Social Security? And why are so many TPM commenters so bereft of information?
These numbers do not contradict the statement that the program is fully funded through 2040-something according to Baker and the CBO. The cash deficits starting in 2016 are covered under current law by drawdowns from the Trust Fund, financed by general revenue, mainly the income tax. In this sense there is no more of a crisis in Social Security than in the defense budget, since there is no dedicated cash source for that either. And by the way it's an odd crisis that creeps on you over two decades. I'd say we have a vocabulary crisis, if anything.
Perhaps the upcoming "entitlements" conference will conclude that accounting changes or measures scheduled to kick in ten years from now will solve the so-called problem. Perhaps the president's diabolical plan is to get an easy painless fix that positions him better to tackle the really hard job of health care. Or maybe he's going to screw us over. Not me, I'm 167 years old, but my progeny. That will be an audacity of hope deal-breaker.
You really don't trust the President.
=D
I'm glad. Keeps us on our toes.
February 13, 2009 7:49 PM | Reply | Permalink
I'm ready to trust him, though I could do without all the cheeseball emails from his minions.
I responded to one with some bitches about some of his decisions and got back a form letter encouraging me to go a web page to leave my message. When I got there I was invited to "tell us your story." Same kind of invitation to some local house parties. I guess we are supposed to sit around and talk about our hemorrhoids.
February 13, 2009 7:56 PM | Reply | Permalink
sit on 'em if you got 'em.
February 13, 2009 9:35 PM | Reply | Permalink
Your problem with Obama's house meetings is the same as mine with his similar meetings before taking the oath of office. He had health care meetings being held all over the country where they were so rigidly scripted that there could be no real discussion about what should be done. Instead we were asked to stand up a tell everyone about our fallen arches and premature baldness - problems I don't have, nor I hope do you have. I came to the meeting armed with a speech outline to discuss why single payer health care had to be worked on from the start or it would never be worked on. I left early - my hemmorhoids were bothering me.
February 13, 2009 11:46 PM | Reply | Permalink
February 13, 2009 9:21 PM | Reply | Permalink
Excellent Post. Sorry to hear about your hemorrhoids, hope springs eternal.
Forgive me for reposting my comment from Dean's column I felt it was more appropriate here.
SS is the feint. Obama is not going to be able to put a credible plan that expands government health care without the appearance of some give on entitlements. I suspect they will tinker around the edges of SS by making a few positive cosmetic fixes (kick out the rich people, move some numbers around, maybe raise retirement ages, etc.) and then have the blue ribbon panel give it the seal of approval.
But the real action will be increasing Medicare financing- I believe Krugman gave a 100 billion a year estimate needed to cover the currently uninsured. This is not going to be easy. I expect Gregg to play Davy Crockett in the GOP's Alamo stand against entitlements.
PS. too true about "Crisis"
February 13, 2009 10:54 PM | Reply | Permalink
You hit the nail on the head Rotwang when you point out we have the same problem in funding the defense budget. And that, ultimately, is what I think keeps bringing certain villagers back to the shibboleth of getting SS under control. Because it is taboo to even broach the subject of the idiotic size of the defense budget it is even more difficult to discuss why it is accepted orthodoxy that there must be real increases of massive proportions to this wasteful spending every year from now until kingdom come. The threat to our nation's financial security comes not from spending on people, but from spending endlessly and quite pointlessly on a "defense" budget that doesn't protect us and only threatens to bankrupt us.
February 13, 2009 11:07 PM | Reply | Permalink
spending endlessly
The odd thing about this kind of unipolar dominant spending is that it is never "enough", and no matter how vast the riches underlying it (Think Spain, ca.1550), the spending overwhelms it.
The spending expands, as it were to overfill the revenue...
Anyway, my point is that it's not like we are the first hegemon to think it's just cool as shit to spend more than everyone else put together on our inventory of ass whup.
February 13, 2009 11:43 PM | Reply | Permalink
Yeah, but it sure makes us credit worthy. I mean who else you gonna lend to? Those pussys in Europe. We own their ass. Say hello to our 13 carrier groups. Hoohaa!
February 13, 2009 11:49 PM | Reply | Permalink
Yes they are both budgetary "problems" to the extent that they cost more than we are willing to pay for them. The defense budget, however, has and can go down though the discretion of policy (see Clinton years). Current law does not obligate us to any particular level of spending on defense in say 20 years(except for military retirement and VA benefits). Who knows, maybe peace will break out.
Social Security benefits, however, will never go down and unless there is an explicit change in the law, their cost will far outstrip what we are so far willing to pay for them.
August 5, 2009 1:26 AM | Reply | Permalink
This is incorrect. Current US Policy and law commit the US to a policy of a minimum 3-5% real growth annually in the defense budget forever. It has been that way for years and years.
August 5, 2009 2:05 AM | Reply | Permalink
We do all have to accept that SS will be in trouble pretty quickly. If the current FICA payments aren't enough to pay for the current benefits, say in 2010, the government will be in crisis. If nothing is done before then, that crisis will result in deficit spending. Can anyone think of any time when we have endured that?
February 13, 2009 11:50 PM | Reply | Permalink
That's what happened in 1983. And we got an increase in the tax rate, a benefit cut in the form of an increased retirement age.
I'm guessing ht next fix looks pretty much the same, although les dependent on higher rates and more on widening the base (to include more of the 17% of total wages above to tax cap).
August 5, 2009 1:21 AM | Reply | Permalink
How about if we cut the defense budget in half and put that money in the trust fund?
Does that take care of the "problem"?
February 14, 2009 12:17 AM | Reply | Permalink
If we cut defense in half we're still spending 10 times what the Chinese spend!
I say let's cut it by 75% in 10 years. Even at that level (which is massive) if you combine all our spending with that of our allies, no nation or group of nations on earth could possibly pose a credible military threat to us.
February 14, 2009 11:38 AM | Reply | Permalink
Whatever you guys agree on is fine with me, as long as you cut it as much as possible!
February 14, 2009 11:55 AM | Reply | Permalink
Thanks for the useful summary of funding.
I tire of the conservative sneer that SS is an IOU, not money. They forget that the dollar is an IOU, as are their hedge funds. Gold or diamonds are tangible, but not legal tender.
February 14, 2009 12:24 AM | Reply | Permalink
One cause for optimism -- protecting social security is one of TPM's great victories. This is really winnable for us because Social Security is actually popular, more popular than the defense budget and the people are just tough to fool about this.
February 14, 2009 11:42 AM | Reply | Permalink
Some highlights from the Stimulus bill, but didn't see any mention of bailout money for suffering hemorrhoids....
The budget office said the bill would have its greatest effect in terms of increasing employment next year, when about 3.6 million jobs could be created. But the report added that the package could have a positive effect on employment for the next five years, perhaps leading to the creation of as many as 11.6 million jobs during that span.
Those out of work will see unemployment checks immediately increase by $25, up from the average benefit of $200 a week. And eligibility for benefits will last 46 weeks, up from 26 weeks. That money, too, will go to people who are most likely to spend it quickly.
Small businesses will benefit from a provision in the bill that will allow them to carry back their 2008 losses for five years, leaving them with more capital to spend. Some critics question the effect of this and other business-friendly tax breaks, because in a recession business may not have enough tax liability to take advantage of the deductions.
The federal government will deliver $54 billion in aid to cash-strapped states, with some of the money available to prop up state budgets, help maintain services and keep employees on the job.
The bill was officially listed at $787 billion Friday, $2 billion less than the estimate from the day before. In spending bills such as this one, the Congressional Budget Office routinely redraws its estimates of the bill's overall cost based on its analysis of the final language.
February 14, 2009 12:14 PM | Reply | Permalink
The structure of the whole SS reform discussion is really stupid, and whatever else Obama has been called over the past couple of years, stupid has not been on the list. What's the likelihood that Obama saw George running around getting his ass handed to him trying to sell social security "reform" and thought, "Gee that's a good idea, why don't I do that too instead of dealing with the economy, health care, two wars, and a lot of other messy stuff?" I am reminded of a ploy by duck hunters along the Gulf of the St. Lawrence, where they use a small dog to run up and down the beach in front of them, playing with a stick. Enough waterfowl want to know what that stupid dog is doing that the hunters go home with a lot of dead ducks. Getting back to social security, who is going play the role of the too curious ducks in this bit of political theater? This is our guy, let's be both cautious and patient.
February 14, 2009 12:44 PM | Reply | Permalink
The ducks are none too bright either.
What I calculated several years ago, back when the grinches first seriously started trying to ¡Smash Social Security! still looks to be sound: through 2016 (for "OASDI") or at least 2014 (for "Combined"), the "Income" exceeds the "Cost".
Now if the grinches were smart enough to come in out of the rain, they would leave well alone until that tipping point is reached, because up to then they can enjoy regressive taxation: a certain amount of each year's general revenue comes out of payroll taxes that are capped far below the august and exalted Hundredth Percentile where most of the grinches that matter dwell.
After that, their income-tax and corporation-tax and death-tax and capital-gains-tax dollars will not only have to pull their fair share of the weight year by year, but will gradually be loaded down with those shortfalls listed under "Balance". Obviously that won't do! Eventually it will be necessary for OnePercenterdom to send out some smallpox blankets (or whatever) to make their world more actuarially appealing, to make us huddled masses less of a threat to the gated communities of our betters.
But meanwhile the idea of fixin' "entitlements" before they are broke makes no mathematical sense.
In 2002, the grinches might have argued that they should fix 'em at once because their Boy and their Party and their Ideology were in power, a set-up that might not last. They missed that chance, though.
Now that they actually have lost power, the idea of a preëmptive strike on Fedguv pensions and Fedguv health care makes no sense of any kind.
All they have to do, obviously, is to JUST-VOTE-NO from yesterday until 20 January 2013, after which there will be 83 GOP Senators and 371 GOP Congresscritters (at very least) to do the smashin' really right.
So what's the rush?
Happy days.
February 14, 2009 4:58 PM | Reply | Permalink
Apparently you are dyslexic. You wrote 83 when you meant 38 and you wrote 371 when you meant 137.
February 15, 2009 11:01 PM | Reply | Permalink
(I enjoy your posts here at TPM. Like a few other writers at the Café, yours is an effectively dialogical approach so while you may attract a portion of noisy comments, I think it is just part of the price of being as “open-ended” as you are. I also appreciate your somewhat dyspeptic tone. So thanks.)
In trying to understand the “controversy” over SS I would suggest a consideration of another “controversy,” namely the one over what percent of tax revenue should be allocated to foreign aid. Poles indicate that most U.S. citizens would support a limit of 10%. What is instructive about this is that the actual current percentage is about 2%. Therefore most citizens would support a drastic increase in foreign aid, that is, if they understood the numbers.
Or would they? And would the numbers or the policy issues matter? If most citizens have no clue what is spent on foreign aid, imagine the quality of their discussion of the reasons for or against programs of foreign aid. I leave it to your imagination.
And so it is with SS. While I personally prefer reasoned debate I don’t think it is one of the options here. Irregardless (I love that word) of what SS really is, the debate is actually about something else. The “SS debate” is really about whether the social contract is a zero sum game or is based on a particular notion of the human condition as expressed, for example, in the Preamble to the Constitution. Either of these positions is a theory, not a fact, and therefore can be debated. However in my opinion it is from one’s position on this debate that all other arguments, explanations and predictions flow. If I take one or the other, I can easily extrapolate in my imagination all of the “arguments” that I see in popular discourse today.
To me it is an historical curiosity that FDR chose to formulate the “New Deal.” I think it was pragmatism on his part, not a new social ethic. Its origins could be found in the institutional documents of the U.S. government, but not in some compelling way. I do not think that the FDR revolution was inevitable or even necessary. There is plenty of historical evidence that the U.S. might easily have gone the way of Germany in the 1930’s. And if it had it could have become then what it is trying to become today - an inefficient, morally ambivalent plutocracy.
February 16, 2009 11:34 AM | Reply | Permalink
I remember a conversation among serious economists the last time this came around, when Greenspan was brokering the looting of middle-class pockets in the name of fiscal sobriety. Most of them were agreed that the US should have been in Trust Fund mode for the first 50 years of the program, and then converted to pay-as-you-go financing, rather than the other way around. Not only is it easier these days to adjust current intake to cover current outgo, but the stimulative effect of not taking that money out of lower-income pockets to fund other budget priorities would be kinda useful.
February 16, 2009 9:31 PM | Reply | Permalink
Perhaps the "problem" with Social Security is that the benefits are way too low for some folks. Perhaps the crisis is that grreat grandma is eating cat food 3 nights a week to get by.
We still have to figure out where to get the cash to pay for them.
You can be for strengthening, expanding and improving Social Security as opposed to blowing the whole thing up. You still gotta pay for it. The demographics are kind of unforgiving.
August 5, 2009 1:32 AM | Reply | Permalink
I happen to be babysitting a kitten for my daughter right now, and I can say with certainty that I will sign up for Obama's euthanasia program before I eat cat food. I know Obama has an euthanasia program because the Repubs told me so. And, that cat food stinks to high heaven. I know there is a high heaven because the Repubs told me that too.
August 8, 2009 8:51 PM | Reply | Permalink