Correcting Ambinder on the Budget
Marc Ambinder just wrote a short post raising alarms about how Social Security is going to cause the national debt to explode over 10 years, even though the numbers he's looking at show no such thing. He writes that "the budget projects the national debt will increase nearly two-fold over 10 years, from $8.3 trillion in 2009 to $15.3 trillion in 2019." But as a share of gdp, that increase is only from 58.7 percent to 67.2 percent. And all of that increase occurs between 2009 and 2011, when the share of the debt held by the public will be 67.3 percent. That increase is mainly attributable to the added spending connected to the stimulus package and the reduced taxes collected during the downturn. Social Security taxes will continue to exceed Social Security benefits throughout most of the period. So don't blame SS.
SS payouts are projected to begin falling below revenue about 2018 I think.
The cumulative debt of Social Security will come out to about 1-2% of GDP. That's a lot but as many have noted not unmanageable.
February 26, 2009 2:57 PM | Reply | Permalink
Sounds like he's looking for an excuse to get the base all riled up. There is nothing wrong with SS other than the repugs couldn't cash it in to use on their pet projects. With the current financial meltdown in progress, just think what would have happened if Bu$h had gotten away with those private SS accounts. Someone needs to get a commission started up to debunk the repugs SS myths once and for all.
February 26, 2009 3:19 PM | Reply | Permalink
Have we all forgotten that back in the early 80's when they doubled social security taxes, that was to create the trust fund to accommodate the demographic bulge in the population curve in the generation following WWII. The whole idea of the trust fund is it starts to cover the shortfall in SS receipts as the BB generation enters retirement. It is SUPPOSED to go into negative amortization late next decade and it is SUPPOSED to be exhausted mid century. Not it seems to be doing exactly what it was designed to do.
So what's the problem? The trust fund was looted by fancy accounting that would be illegal if you or I did it. The cash was swapped for treasuries, but now market is flooded with treasuries tied to our brittle currency and bearing 0 to 1/4% interest. So what else is there besides raising taxes to pay off the bonds, or print money to do it? Or we could privatize it, right?
February 26, 2009 3:27 PM | Reply | Permalink
I don't think you understand what the Trust Fund is. Social Security (and Disability) revenues exceed outlays and the money is put into the trust fund. So what do you do with the money?
1. Leave it in cash? Do you know what happens to the value of money over time. It would be inflated away. this would be colossally stupid.
2. Invest it in private assets? Yes we could have put all or part of the trust fund Surplus in the stock market, the bond market. We could have bought real estate or loaned the money to someone. This would be a form of savings, but it is also controversial for various reasons. Clinton was going to propose investing some of the surplus in the stock market in 2000.
3. "Invest" in public assets, namely Treasury bonds? This is what we have done. We basically gave the money to the Treasury with the understanding that they would pay back into the trust fund interest and then principal. So where does the Treasury get the money to pay back it's bonds. It gets it from tax revenues. So the treasury will have to raise revenue from the American people to pay off the bonds that will pay for the Social Security benefits of the American people.
In other words the Trust Funds were not saved in the kinds of assets that most people invest in. Their return comes from the ability of the federal government to raise revenue. The surpluses were used to fund government spending. It is possible that some of that spending increased the productive capacity of the country and therefore will result in greater revenue collections in the future. To the extent that the surpluses simply funded greater spending than would otherwise occur (resulting in larger deficits) then the Trust funds were not saved. We'll have to come up with the money either way.
February 26, 2009 10:04 PM | Reply | Permalink
You're complaining that "the Trust Funds were not saved in the kinds of assets that most people invest in"? You mean like the stock market? Wow, how much better off we'd all be if they had been!
Seriously, this is why privatization was such a bad idea, and we need to put aside foolishness such as that the SSTF should be invested in publically traded securities. To even imply this is the height of silliness right now.
In any case, while I agree that forcing the government to basically borrow the SSTF in the form of T-Bills does create an incentive for it to spend more, that didn't seem to be a problem under Clinton, who balanced the budget using precisely this method. Paygo rules can be applied that make it much harder to increase unnecessary spending due to the SSTF. The government will always be borrowing money, even if the deficit is someday eliminated again. That's how large organizations function.
But if, instead of borrowing this money from China, Japan or Gulf states, we can borrow it from American workers and keep the interest in-country, doesn't that make sense? Sure the interest will be paid by taxpayers, but they're going to be paying interest on government debt anyway. And if we make income taxes more progressive, raise the rediculously low capital gains tax, and eliminate all those loopholes such as the hedge fund one, then paying that interest won't even affect most social security beneficiaries during their working lives. Oh, and stop taxing SS benefits. That makes no sense.
February 27, 2009 2:49 AM | Reply | Permalink
I was not advocating investing the trust fund, but we all have to grapple with the fact the trust fund surplus was not "saved".
If the trust fund surpluses were not saved for the future, there is no asset we can sell to fund the future benefits.
All we have is the ability to tax.
Older folks don't care if they won't be paying any of the taxes. Younger folks will have to pick up the tab.
February 27, 2009 10:58 AM | Reply | Permalink
Have we all forgotten that back in the early 80's when they doubled social security taxes, that was to create the trust fund to accommodate the demographic bulge in the population curve in the generation following WWII.
You can't forget what never happened. The 1983 Reform didn't double anything, instead it took FICA in stages from 10.4% to 12.4% from 1983 to 1990.
http://www.ssa.gov/OACT/ProgData/taxRates.html
I see this number all the time, all I can figure is that someone down the line heard '2 points' and translated it into '2 times' and so 'double'.
Plus it didn't 'create the trust fund'. The Trust Fund has always been a integral part of Social Security as can be seen on the cover letter of the very first Report in 1941 We have the honor to transmit to you the First Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund
Nor is there any real evidence of a focus on Boomer retirement. Per Robert Myers, the Executive Director of the 1983 Greenspan Commission, the immediate goal was addressing the ten year window (Short Term Actuarial Balance) and only secondarily the 75 year window ON AVERAGE (Long Term Actuarial Balance) with no real consideration of the specific 25 year intervals in between. Social Security was within weeks of Trust Fund Depletion in 1983 and the tax increase went primarily to fund Greatest Generation benefits. That events turned out so that it also covered most of Boomer retirement being more or less a happy accident. Robert Myers and Pre-funding Social Security
February 27, 2009 1:56 PM | Reply | Permalink
"Social Security taxes will continue to exceed Social Security benefits throughout most of the period. So don't blame SS."
While the first sentence is true, and while I don't subscribe to Social Security hysteria, as I pointed out in the comments on Ambinder's post, Social Security outlays increase dramatically during the next decade while revenue slowly declines. Yes, Social Security viewed alone will be in the black for most of that decade, but that will be less and less true over time.
Since the Social Security surplus is counted towards revenue when calculating the deficit, this means that the decrease in SS revenue will account for quite a bit of the change in deficit between this year's budget and 2019.
I'm all for segregating Social Security and excluding it from deficit calculations -- I think it's the honest thing to do if you make the argument generally held here at TPM that Social Security on it's own is more or less fine.
If you were to calculate the deficit over the next 10 years with Social Security revenues and outlays excluded, the effect Ambinder notes (deficit decreasing and then increasing) wouldn't be so severe.
February 26, 2009 3:38 PM | Reply | Permalink
Replying to myself; looking at the actual budget document, there's a $140B decrease in the Social Security surplus between 2009 and 2019. It accounts for a substantial chunk of the deficit. This estimate projection of SS revenue is much better than the one I was looking at earlier, so it's not so severe.
February 26, 2009 3:49 PM | Reply | Permalink
There is no problem with social security, and I agree that it should be taken off-budget, since it's targeted. Its "deficit", as you pointed out, was entirely expected and accounted for by the trust fund. Anyone claiming that it's going broke either doesn't know what they're talking about, or is deliberately lying.
February 27, 2009 2:53 AM | Reply | Permalink
Oh boy. While Social Security surpluses do count as revenue for the purposes of calculating annual Unified Budget surplus/deficit they score as debt when you are calculating total Public Debt (a combination of Debt held by the Public and Intragovernmental Holdings). Social Security Trust Fund balances are currently right at $2.4 trillion and are scheduled to peak at right over $5.5 trillion in 2023. That additional $3.3 trillion will score as debt, that is we could balance the General Fund tomorrow and still see Total Public Debt increase from $10.8 trillion (as of yesterday) to $14.1 trillion in 2023.
US Treasury: Debt to the Penny
Table VI.F8.—Operations of the Combined OASI and DI Trust Funds, in Current Dollars, Calendar Years 2008-85 [In billions]
February 27, 2009 1:29 PM | Reply | Permalink
According to the same Repub logic, I am in deep trouble.
I saved a ton of money over the last 30 years, which is now all in T-Bills (or, as Bush said on live TV, "just a filing cabinet full of paper"). And my income currently exceeds my expenses.
BUT, I plan to retire soon; and then my expenses will exceed my income. So I will be demanding payment on some of the Government Debt Obligations to pay the difference every year, thereby increasing my deficit.
So where is the real problem? Perhaps the Madoff-hugging Repubs don't want to pay off on my paper. Personal responsibility you can count on.
February 26, 2009 3:53 PM | Reply | Permalink
The Treasury pays off all it's bondholders in the same way--from current tax revenues. So in fact some part of your taxes you pay each year will be used to pay you back.
Now the Social Security Trust Fund owns a few trillion dollars of bonds. The proceeds of those bonds give it the cash to pay promised benefits from 2018 (when payroll tax revenues begins to fall below outlays)until about 2041 or so. The cash used to pay the interest and then the principal on those bonds will come from general revenue. So the treasury will tax all taxpayers to pay off the Social Security beneficiaries (some of whom will also be taxpayers.
The accounting is simple. The federal treasury will need to raise more revenue to pay off it's bonds whether they are held by you, China or Social Security.
February 26, 2009 10:16 PM | Reply | Permalink
That 2041 date is based on the most pessimistic projections available. More reasonable projections have it solvent well beyond that, if not out to infinity, and any future insolvency can be easily addressed with some minor tweaks in a few decades. It's a purely GOP-invented "crisis".
February 27, 2009 2:56 AM | Reply | Permalink
You don't actually know what you are talking about, truly. Not at all. 2041 is based on the "intermediate" or best guess assumptions. You may think they are conservative, but I assure you, there are many people who think some as optimistic.
Why do you think life expectancy will only increase at .6 yrs per decade when Canada expects more than twice that rate?
Are you sure we will continue to have relatively high fertility rates or will we fall to the rates experienced in western europe?
Will income inequality continue to increase at the same pace putting an even greater share of total payroll over the threshold where it is subject to payroll taxes?
I mean we can do this all day. The fact is you are repeating nonsense you heard somewhere else. When you understand what is involved in detail come back and we'll have a discussion.
February 27, 2009 11:05 AM | Reply | Permalink
Well I know what I am talking about because I have been reading the Reports on issuance since 1997.
Social Security has come in ahead of Intermediate Cost in all but one of those 12 Report Years and particularly from 1998 to 2004 by large margins, in fact in a bunch of years better than supposedly optimistic Low Cost. While I wouldn't put it quite like Kovie did he is far more right than wrong on this one, the record of Intermediate Cost is that the actuaries 'best guess' has been mostly too pessimistic.
February 27, 2009 1:40 PM | Reply | Permalink
You are of course talking about the short term projections, Bruce. Since projections made in 1997 are themselves only 12 years old. The real action comes over the period of time when things get really expensive really fast. So I would say what we think happens over the next 30 yers is relevant. I don;t know anyone who thinks there is a good chance for the low cost scenario coming to pass over the long-term.
The big reason projections were overly pessimistic during his time period are largely due, I believe, to massively underestimating immigration, slower improvements in female life expectancy, and perhaps the impact of the transitory boom of the Clinton years.
There are some reasons to think the Trustees are too pessimistic (immigration, earnings to compensation ratio, GDP-CPI differential, and other reasons to think they are overly optimistic--mortality rates,fertility and income inequality. If you want to bet your future on the last 10 years of experience, go right ahead, but you need a more convincing story for a whole host of assumptions.
February 27, 2009 5:35 PM | Reply | Permalink
I don;t know anyone who thinks there is a good chance for the low cost scenario coming to pass over the long-term.
So you've never heard of the guy who just won the Nobel Prize in economics? Interesting.
I'm amazed that you'd not only be this confident about economic projections going out to 30, 40, 50 years and beyond, but that the ones you'd be most confident about are the most pessimistic ones. It's almost like you're fishing for ways to prove that SS is insolvent and in need of drastic reforms.
Hmm...
February 28, 2009 5:24 AM | Reply | Permalink
Heh, nice one there. I get my take on this from the likes of Krugman and Baker. Who do you get yours from, Pete Peterson and the "Social Security is going broke" crowd?
Seriously, you can insult me all that you like, but you're making stuff up and scaremongering in order to make people believe that SS is in crisis when in fact it's doing amazingly well, and anyone who says otherwise is just lying.
As for your sleight of hand about how general revenue pays for the interest on its trust fund, well duh times a zillion. How do you think we pay for the interest on the same exact time of loans we get from China and Japan and gulf states? Why should the trust fund be any different?
I honestly don't understand what you mean by our not having saved the surplus. What would we have done with it, kept it locked up somewhere so no one could touch it and it wouldn't appreciate, while we continue to sell vastly more than its worth in T-Bills to these countries and pay them the interest? This makes zero sense.
Look, you have an agenda here. Fine. But don't expect to not get called on it.
February 28, 2009 5:20 AM | Reply | Permalink
PatentInvestor-That was really well put. A very clear and succinct explanation of the situation. Thanks.
February 26, 2009 4:05 PM | Reply | Permalink
Yes, that was the best, easiest to understand explanation I have seen.
February 26, 2009 5:38 PM | Reply | Permalink
Except he left off the fact that we need more revenue to pay off the bonds. If you are sold that you don't expect to be paying taxes in about 10 years, I guess that good for you. Everyone else will pay higher taxes to pay off the bonds. If that doesn't concern you then sure there is no problem. There is a cost, however.
February 26, 2009 10:18 PM | Reply | Permalink
sold=so old
February 26, 2009 10:32 PM | Reply | Permalink
Well I'm no cinch to be paying anything in 10 years, being 73, but the analogy is still very good. We paid excessively high FICA for 20+ years to get where we are now. That made the total federal tax bite a regressive tax - the excess FICA was just used as if it were income taxes, but the lower income taxpayers paid a higher percentage of their income in that tax than the highly paid taxpayers did. We accepted the bargain, even though we were being shafted all of those years, using your logic.
Now, the bill is coming due.
February 26, 2009 11:48 PM | Reply | Permalink
That's just silly. The government will always be borrowing money and paying for it with interest, and no way will the SSTF ever exceed what the government borrows. So basically the government is borrowing money from future SS beneficiaries that it would have otherwise borrowed from China or Japan, and paying them interest instead of these countries.
When the day comes that the government borrows less than the SSTF is when your argument makes sense. That day will never come.
February 27, 2009 3:02 AM | Reply | Permalink
So you are saying we don't ever have to pay our bills, we'll just roll over the debt in perpetuity, and that way it's free (minus some piddling interest).
February 27, 2009 11:07 AM | Reply | Permalink
I have no idea what this means. We live in a debt-based economy, and are always borrowing from tomorrow to pay for today, and paying back for yesterday today. That's how modern economies work, based on credit. So long as you're not in long-term deficit, this is not only fine, but preferable, as it maximizes economic growth, which is not possible on a cash basis economy.
So yeah, we will always roll over our debts, but that's what we've been doing for ages, and that's not going to change. It's not just SS where this is done, but the entire budget. And so long as we can project future revenues that will cover today's debts, this is perfectly fine. So I'm not sure what your point is here other than to object to modern capitalism.
February 28, 2009 5:51 AM | Reply | Permalink
Just a thought from out in left field. The idea that SS monies should be isolated in a lockbox, away from other revenues of the Federal government may have its roots in the '80s when SS was given a change in perception from a simple government program designed to keep the elderly out of poverty when their working days are over, to a personal pension program where 'my money' was kept until I needed it in old age. From that point forward, the conversation was always how I could do better investing my money myself, and how soon the system would go bankrupt so I should get my money ASAP before it does. This was reinforced by the now familiar annual mailing from the SSA detailing how much we have paid in, and how much we can expect to receive upon retirement. This whole practice created the idea that the money in SS, under our name, was ours personally, and provided the foundation of the argument presented by Republicans that privatization was the way to fix it. As we can clearly see now, had privatization become the law of the land, the crisis now facing the financial industry would have engulfed the trillions in SS savings and instead of having it as the safety net it was intended to be, there would only be shredded lines where the net used to be, and long lines at soup kitchens. Certainly, we can hope that the stock market will regain it's footing and growth will again be common, but for anyone needing that money today, they are out of luck. Social Security should stay the government program that it was created to be just like any other, and talk of it as a personal pension should cease.
February 26, 2009 4:14 PM | Reply | Permalink
Well of course it is a pension. It's a defined benefit pension, based on the years and level of earnings as well as the average wage growth of the entire population.
Every individual who has worked long enough is "insured", that is, they are legally entitled to their benefit. The Government pays the benefits out of current revenue (unlike a private defined benefit pension which would be paid out of a pool of invested/saved assets).
Social Security is not an investment/savings account where your contributions grow in value and are then withdrawn at retirement.
February 26, 2009 10:26 PM | Reply | Permalink
Zombie lies never die.
February 26, 2009 4:16 PM | Reply | Permalink
I made a couple charts showing that Ambinder's right but that it's nothing to worry about: http://alchemytoday.com/2009/02/26/209/
I'd like to know what part of his post makes you think he's "raising alarms." No clue what he's said on the issue in the past, but he's just saying the surplus is disappearing for awhile and this will affect the reported deficit. That's true. Saying the program's bankrupt is alarmism.
February 26, 2009 4:33 PM | Reply | Permalink
This whole SS discussion is bogus. The projections on SS has the GDP expanding and a 3% annual rate. Notice how often in the past ten years the economy actually increased by that amount. Now factor in the recession, future recessions(as sure as death and taxes)and then begin to analyze the impact the current recession is having on pensions, savings, 401k's, etc. The so called huge influx of retirees will be substantially reduced and spread out given the devastation to retirement resources that have occurred over the last two years and the coming year or two(or three or four?). Basically, if you revise the assumptions to more realistic projections then I'd argue that there is essentially NO SS problem. It is so far in the future to not really need to be dealt with anytime in the next ten years or so. On the other hand there's nothing wrong with making an egregious regressive tax more progressive. One fix that could occur could be making the SS payroll tax really progressive up to and including incomes of 1M+. Or to accomplish the same thing alter the cutoffs based on income.
February 26, 2009 4:47 PM | Reply | Permalink
So what happens if life expectancy increases by 1.5 years per decade as they expect in Canada and the total fertility rate falls to 1.7 as in Western Europe. If you don't understand the question or have no answer then no one should trust you to tell us what you think is or isn't a problem.
February 26, 2009 10:31 PM | Reply | Permalink
You really think that SS projections don't take these things into account? Come on, that's a straw man. Of course they do.
February 27, 2009 2:58 AM | Reply | Permalink
Well there are explicit assumptions about those values in the Trustee projections and the current assumptions are much more optimistic (i.e. shorter life spans, higher fertility). NOw there may well be assumption that make the projections too pessimistic and others that make them more. hand waving doesn't work on people who actually know what they are talking about. Cmon.
February 27, 2009 11:10 AM | Reply | Permalink
Economides you are awfully ready to throw around the 'you don't know what you are talking about' and 'I don't think you understand' prior to showing that you actually pass either test.
So what happens if life expectancy increases by 1.5 years per decade as they expect in Canada and the total fertility rate falls to 1.7 as in Western Europe.
The answer to that and your questions below can be found in the following tables which give three different sets of demographic assumptions.
Principal Economic Assumptions
Period Life Expectancies
Cohort Life Expectancies
The answer to this specific question is 'High Cost alternative outcomes' which themselves can be found expressed in both dollar terms and as percentage of GDP in subsequent tables. You seem to be implying that these factors have simply not been addressed at all when instead they are addressed in detail.
Plus you show no awareness of how small the initial and final gaps between revenue and costs actually are. Luckily I have done the hard work for you: Financing Shortfall.
You are not alone in thinking you can just address Social Security from the conceptual top down rather than the numeric bottom up. But all that does is put you in a position of implied authority that you really don't have.
February 27, 2009 2:14 PM | Reply | Permalink
So Bruce, I respect you know what you are talking about, so our discussion is different from the one where I say things could be worse than you expect and the other guy says, we take that into account already and therefore when they tells us were good until 2041 were good. It's a form of wave off. Like, there is no housing bubble. I believe in preparing for the worst. I rather pay slightly higher taxes than necessary than get slammed for a a bill that will shock the system or give impetus to large benefit cuts. Folks in Europe are all undergoing big benefit cuts now.
On the pertinent facts:
1. The trustees only publish all high or all low scenarios, in addition to their best guess. So no they do not take into account other plausible scenarios, like decent economics but very costly demographics (such as is the case in Europe).
2. If you read the sensitivity analyses, then you know that fertility levels falling over the next 30 years akin to those in Europe today, or life expectancies rising over the next 30 years to levels currently experienced in places like france and Japan today make the system much more costly. Maybe by then you will be dead and don;t care. Some of us do. Of course the sensitivity analysis only gives us the marginals, you can;t add them up to make your own scenario. Also I bet you can't find the sensitivity analysis for the share of earnings subject to payroll tax falling along the same trend as it has followed for 20 years.
3. I tis true there is a high cost scenario inthe trustees report but no one, no one talks about what kinds of changes would be required to deal with that situation (even if it is too pessimistic). We only hear about the fiction of 2041.
4. I have said lots of times on this thread that the size of the gap between revenue and cost is about 1% of GDP. I have said it is certainly manageable but we will have to pay for it, instead of pretending that we are just fine. Or that it is OK to avoid paying for it now because someone else can always deal with it later. Yo seem to think my bottom line policy preferences is something other than to raise the revenue needed to make the system strong, but to allocate that over time to make it fairer to each generation. No need to put words or conclusions into my mouth.
February 27, 2009 5:51 PM | Reply | Permalink
Unless you're a professinal forecasting economist then I think you're wasting your time delving into a very complex and murky field that even the experts who do it for a living and have the training for it would admit is a very imprecise science. I'm not an economist and certainly wouldn't even begin to attempt to do this on my own.
Which is why I rely on the judgement of actual economists for such forecasts, and the ones that I most respect, i.e. the ones who predicted the present crisis years ago and called out the likes of Friedman and Greenspan for the corporate shills and hacks that they were, are all saying that only the most pessimistic projections predict future SS involvency, and even then not for another 30-40 years and with benefits at 70-80% promised levels. More intermediate projections push this out further, and optimistic ones push it out to infinity--i.e. no insolvency, ever.
February 28, 2009 5:58 AM | Reply | Permalink
(I hit submit prematurely on the above comment.)
Anyway, at WORST, we're talking a fairly modest shortfall in 30-40 years, that as we approach it can be resolved with various fixes, but that's still 15-20 years away. At best, no problem, no fixes. And in-between, an even smaller problem even further out into the future, easily fixed with minor tweaks decades from now. So the overall likelihood of major crisis that must be addressed right now is minimal, at best, even if the most pessimistic projections come true.
What you're proposing is that we devote major financial and political capital towards solving a relatively minor and unlikely problem way off in the distant future just to be safe, which makes no sense given the vastly bigger problems we face today and will face in the actually foreseeable future, for which we'll need all the financial and political capital that we can get. It makes no sense. It's like selling your house and buying a houseboat because coastal waters might rise in 20 years due to global warming. Smart economic planners don't operate that way. By trying to account for all potential future risk, you end up stiflng present activity and defeating the whole purpose.
And I don't know about you, but I get my projections from the likes of Krugman, Baker and Reich. Were do you get yours, the Peterson Foundation?
February 28, 2009 6:08 AM | Reply | Permalink
Ok, this is so painfully obvious I feel stupid even saying it but...
In SS we have a program model that has maintained funded, indeed is fully funded for a number of years into the future (unlike, I don't know, EVERY other federal program???).
Reform social security? Ummm, isn't it the only one that is proven to work?
February 26, 2009 5:16 PM | Reply | Permalink
More responsible people--who have to worry about the retirement of today's 35 year olds, for example, and not just 65 year olds-- clearly have longer time horizons than you do.
February 26, 2009 10:41 PM | Reply | Permalink
Even pessimistic projections show enough cash in the trust fund to pay the majority of benefits promised to everyone alive today. Small tweaks make that 100% of promised benefits.
If you're worried about a bankrupt government it's probably best not to point to the program with over four trillion dollars in its coffers.
February 27, 2009 12:00 AM | Reply | Permalink
I nver said anything about bankrupt government.
The only question is where the money comes from to pay those benefits. You are right the Trust Fund has enough money to pay "a majority of benefits"in perpetuity actually, but I am not so sure people want a "majority of benefits" anymore than they would settle for a majority of their salary. In any case the current estimate is about 75-80% of scheduled benefits are payable after about 2041.
But the Trust Fund has the money to pay those benefits because it is cashing in Treasury bonds (until ~2041), and the treasury bonds are paid for by tomorrows tax dollars. So The Trust Fund in this sense is not at all helpful in explaining where we get the money from.
The simple fact is there is a shortfall of revenue--about 1.1% of gdp; and we need to be honest that we will have to raise it. Instead we are playing word games like Trust Fund and such...
Republicans on the other hand say we can't possibly raise any extra revenue or the world will come to an end. Therefore we have to cut benefits.
Alternatively we get people to work longer, rasing revenue and forestalling payouts.
February 27, 2009 1:20 AM | Reply | Permalink
No.
February 27, 2009 3:04 AM | Reply | Permalink
enlightening.
February 27, 2009 11:13 AM | Reply | Permalink
Economides since you are so good at asking questions maybe you could try answering one.
What percentage in real terms (i.e. basket of future goods) is the 78% payout scheduled in 2041 represent compared to a similarly situated retiree gets today?
Wait for it---
125% (78% of 160% = 125%). This is the function of adjusting the initial benefit of that 35 year old by an average real wage increase of 1.1%
So who is the responsible person now? Why should I get worked up because Gen-X only gets a 25% better real benefit check than the one my Mom gets today. Once again it really helps if you fill out your 'longer time horizon' with some real numbers instead of playing a game of 'conceptual man on the hill'. You are trying to roll massive boulders down the argumentative hill not realizing that they are made of rhetorical styrofoam.
February 27, 2009 2:22 PM | Reply | Permalink
"Why should I get worked up because Gen-X only gets a 25% better real benefit check than the one my Mom gets today."
1. I believe we should keep our commitments to future generations, all of them. If you think the accident of your birth entitles you to stiff younger folks that's on your conscience. Frankly I think we may have to pay even higher benefits.
2. Real benefits will grow more slowly than real income as you freely admit. It comes down to a value judgment of whether you think SS should keep up with the current standard of living or not.
3. I think the growth of benefits in real terms understates the loss of purchasing power due to the projected growth of health care costs. If nothing is done and the projections are reasonably accurate, future retirees will pay a much larger share of their SS benefit fro their Medicare premiums and other out of pocket costs. But hose folks aren't your mom so who cares.
February 27, 2009 6:03 PM | Reply | Permalink
Two entirely different questions here. Are you saying that the problem is that without a fix to SS, future benefits will pay only 70-80% of promised benefits in 30 or so years? Or are you saying that even if it pays at 100%, this still won't be enough to cover the projected cost of living increase over this period. Or are you saying both?
I know that you're saying the first thing, so let's put that aside for now. As for the second, you may actually have a point, which is the real question here, I think. I.e., whether it pays 70%, 80% or 100% of promised benefits, will SS benefits be enough to keep up with cost of living increases over time? And if not, what needs to be done to fix this? Perhaps even if it pays at 100%, that won't be enough to cover basic living expenses in the future.
Which what I hope and assume Obama means by "entitlement reform", i.e. addressing the entire gamut of issues having to do with retirement benefits, including health care AND SS. And while we're at it we should also address retirement planning in general, and make it more likely that future retirees will have more than enough to cover their health and other living expenses, between SS, Medicare, Medicaid, pensions, and other investments. And of all of these, SS is actually the least problematic, other than that its benefits might actually need to be increased, via a payroll cap or means testing.
I think you're right to call out A problem here, even if I think that you're calling out the wrong one. The problem isn't SS. It's all these other retirement instruments, which ARE facing or are already in crisis. We need to focus mostly on these, and while we're at it, make whatever likely minor adjustments to SS are needed to enable it to keep up with retirees' minimally acceptable cost of living. But if we do focus on things like health care, housing, food, etc.--i.e. problems with risk management and cost pooling can be leveraged--SS should be a very minor problem in the end.
February 28, 2009 6:28 AM | Reply | Permalink
Hello?
"from $8.3 trillion in 2009 to $15.3 trillion in 2019"
I thought the debt was already at about $11T or more (depending on how you figure recent deficit factors in). I'm sure it's over $10T.
February 26, 2009 8:42 PM | Reply | Permalink
One way to get the money is to dedicate the tax that boomers will pay on their 401ks as they cash them out.
Those who have lost money still have some in there and it will be taxed anyway when it is withdraw as the retirees need it.
We could raise the cap if we have to down the road.
The real life expectancy is 78, we are being lied to when they say it is longer. Google world life expectancy.
Boomers are considered to be those born 1946 to 1964. Add 78 years to 1964 and it will bring the year to 2042. That ought to tell us that Social Security is doing fine.
They have also used the lowest incomes and the highest outgoes in their projected Social Security costs.
February 27, 2009 11:00 AM | Reply | Permalink
I don't think you understand life expectancy.
here's a quiz:
1.what is the life expectancy of US men at birth and at 65, and why should they be different?
2. Is the life expectancy of women greater than or less than that for men. How long is it?
3. What is the difference between period and cohort life expectancy and which should we use to project our future liabilities?
4. What percent of those (men/women) born in 1964 can be expected to live past age 90?
February 27, 2009 11:18 AM | Reply | Permalink
1. 75.7 and 16.9 (Period)
2. Greater. 80.0 and 19.3
3. http://www.ssa.gov/OACT/TR/TR08/V_demographic.html#203457 (Cohort). Both
4. The data tables don't get to that level of granularity. Women born in 1965 had a Life Expectancy at birth of 80.2 years and a Life Expectancy at age 65 (2030) of 18.0 years.
I think I understand life expectancy pretty well. I also have examined the actual numbers and see no reason to see that Intermediate Cost assumptions are too optimistic.
But would be happy to see your analysis. With numbers and data points attached. Instead all I see is high level conceptualization and flinging of insults about other commenters' level of knowledge.
February 27, 2009 2:38 PM | Reply | Permalink
So obviously Bruce I was responding to comments like this from Summer: "The real life expectancy is 78, we are being lied to when they say it is longer. "
That's simply not true, and basing policy on lack of understanding is dangerous. There are a growing (and I contend underestimated) number of people who will live well past 78 who will be on the rolls way before 2042.
Reading the heading on the table I guess doesn't clue you in to the fact that we should be using cohort tables to project future costs, not period tables.
You write: "I also have examined the actual numbers and see no reason to see that Intermediate Cost assumptions are too optimistic." Well a lot of demographers would disagree with you. But you should read the last Technical Panel review of the Trustees reports, they describe the consensus of demographers pretty well. It's in chapter 2. B. {this leads you directly to the pdf) http://www.ssab.gov/documents/2007_TPAM_REPORT_FINAL_copy.PDF
And of course the problem is that we "see no reason we are being too optimistic." Kind wish a lot fewer people had that perspective over the past few years.
February 27, 2009 6:17 PM | Reply | Permalink
You're actually arguing that the people who do this for a living don't take all this into account, and that you see factors that they don't? That's really straining credulity. As Bruce has asked several times, you need to cite professional studies and projections that support your conclusions and fears about SS, that credibly contradict what most legitimate economists believe about projections--the operative word being legitimate, as anyone in the employ of a right-wing "think tank" or issue advocacy group is obviously going to be lying their ass off to make a point. Right-wing economics is a contradiction in terms, so no silliness from AEI, Heritage, Cato or Peterson, please. This isn't CPAC, you know.
February 28, 2009 6:15 AM | Reply | Permalink
Ed Hardy Clothing sale in Ed Hardy UK Shop,all the Ed Hardy Shirts
,Ed Hardy Clothing,Ed Hardy Jeans,Shoes,Hoodies are latest designed
Ed Hardy Sunglasses
July 22, 2010 9:10 AM | Reply | Permalink
bağkur borç sorgulama
With all the sites out there with information on them with a ton of junk it's nice to find a blog whose admin takes the time to create good material. TY for the good post.
sgk
March 18, 2011 5:23 PM | Reply | Permalink