Social Security 2006 Trustees Report

It has finally been released and its highlights include:

The 2006 Social Security Trustees Report shows little change in the projected financial status of the Social Security program over last year. The Trustees Report projects that the Social Security Trust Funds will be exhausted in 2040 – one year sooner than last year’s projection. And, as they have done for more than a decade, the Trustees recommend that projected trust fund deficits be addressed in a timely way to allow for gradual changes and advance notice to workers.

In the 2006 Annual Report to Congress, the Trustees announced:
• The projected point at which tax revenues will fall below program costs comes in 2017 – the same as the estimate in last year’s report.
• The projected point at which the Trust Funds will be exhausted comes in 2040 – one year earlier than the projection in last year’s report.
• The projected actuarial deficit over the 75-year long-range period is 2.02 percent of taxable payroll – up .09 percent from last year’s report.
• Over the 75-year period, the Trust Funds require additional revenue equivalent to $4.6 trillion in today’s dollars to pay all scheduled benefits. This unfunded obligation is $600 billion higher than the amount estimated last year.

I suspect some folks who are much smarter than me will be checking this report out thoroughly for the reasons for this modest change in the Trust Fund’s solvency – just as I suspect there will be lots of other folks pouring over this report to cherry pick some incredible dishonest and/or stupid spin. Stay tuned!

Update: Contrast the rather decent CNN story to the doom and gloom report from AP & MSNBC:

The trust fund for Social Security will be depleted in 2040 … While the depletion of the reserves built up over past years is projected to occur in just 12 years for Medicare and 34 years for Social Security, both programs will face financing issues much sooner at the point that the amount paid out each year exceeds the amount the government collects to fund them.

The assets in the Social Security Trust Fund will continue to grow for the next 15 years or so and will peak around $8 trillion. In the meantime, the General Fund is currently over $8 trillion in debt – with that debt growing by $0.6 trillion a year. And AP says the Social Security Trust Fund has a deteriorating financial condition? Karl Rove must be pleased!

Update II: Kevin Drum has been reviewing the assumptions in the 2006 report v. the 2005 report:

There were two big changes in SSA’s actuarial assumptions. On the plus side, they finally increased their projection of long-term productivity growth a bit, from 1.6% to 1.7%. On the negative side, they reduced their projection of long term real interest rates from 3.0% to 2.9%. The overall impact was to make the solvency of the trust fund look a bit worse than last year. Demographic projections were brighter than last year: the trustees now predict a higher fertility rate but not much change in death rates. Immigration assumptions, which are probably overly conservative, didn’t change. Disability rates were projected a bit higher.

Faster projected population growth and higher productivity growth along with a lower real interest rate? Someone call Dean Baker, Brad DeLong, or Paul Krugman!

And in honor of the immigration debate – let’s call Jeremy Siegel (via Mark Thoma):

What can fix this problem? Productivity is one possibility. But even if productivity grows at 3.5% a year, it only buys a couple more years. What about immigration? How many people will the U.S. need to keep the retirement age at 62? About half a billion, according to my calculation. This is a lot of people … If we rely just on ourselves, people will have to work 12 years longer. But if we embed in global economy, we can sell assets to the developing world, and they can ship us goods. That is our best hope, and if we do that our retirement age will stabilize at 68.