The Vanishing Surplus-Revealed

by Bruce Webb

(Update 4/13: several commenters pointed out that this claim is in fact wrong: “In this Report CBO has introduced a new term of art called ‘Primary Surplus’.” ‘Primary surplus’ is not a new term of art at all, it is instead one of five measures of ‘Budget Surplus/Deficit” as described in Table one in this paper by Boskin Sense and Nonsense About Federal Deficits and Debt (h/t MG) But I suggest this from that paper validates my overall point (bolding mine).

Table 1 Alternative Budget Surplus/Deficit Concepts
1. Unified nominal surplus/deficit = nominal revenues – nominal outlays; “headline” numbers

In normal reporting aimed at the public ‘surplus’ is I maintain NOT normally understood to be ‘primary surplus’ but instead as ‘nominal surplus/deficit’.)

Commenter Arne came through and supplied the link to the CBO document that showed the Social Security surplus ‘vanishing’. I supply it and the corresponding data tables from the 2008 Social Security Report. Preliminary discussion below the fold. As always click to enlarge images.

First point. The ‘Surplus’ as normally used by the CBO did not in fact vanish. It did indeed take a projected hit of $70-80 billion a year but after 2011 comes in at upwards of $150 billion a year. Second point. The ‘OAS Surplus’ didn’t disappear either. It takes a major hit over the near term but then builds again right through 2019. Third Point. Now the ‘DI Surplus’ DOES disappear and this year. But an examination of Table IV.A2 shows that the Trustees projected this to happen in 2012 anyway. Meaning that people who tell you that a deficit event scheduled for 2017 has moved up to February 2009 are simply using apples and oranges. Instead we had an event limited to DI move up from 2012 to 2009.

Fourth point. In this Report CBO has introduced a new term of art called ‘Primary Surplus’. Despite what the guys from AEI tell you this is NOT the standard usage of ‘Surplus’. Instead it corresponds to what is known as the ‘Cash Surplus’ or by the SSA as ‘Income excluding interest’. This is an important bend point for the Treasury in that it marks the point when OAS or DI no longer are net lenders but instead require cash transfers from the General Fund. But it is only an important point to anyone else if they have discounted the value of the existing Trust Funds and interest thereon to zero. Fifth point. Even if we considered ‘Primary Surplus’ to be the key its date of vanishment doesn’t move up from 2019 to 2009, instead on a combined basis is moved from 2019 to 2018. And OAS doesn’t move up at all on an annual basis, instead ‘Primary Surplus’ vanishes somewhat earlier in calender year 2019 than previously projected.

So if we add points one to five together we get to a point best summarized as ‘Liar, liar! Pants on fire!” It doesn’t surprise me that Hassett, Biggs, and Montgomery managed not to provide a link to the source, on examination it just doesn’t support the thrust of their articles and post.

Is this recession good news for Social Security overall? Of course not, high levels of unemployment directly choke off revenues in ways that are not totally offset by the savings from low to negative inflation rates (CBO projects $500 billion in cost savings due to lower COLAs going forward). Is it a reason for immediately capitulating to Hassetts demands for a Bi-Partisan Commission along the lines of the 1983 one? Hell no. In 1982 the DI Trust Fund had a balance of $2.7 billion and a Trust Fund ratio of 17 meaning 62 days of reserves. OAS had at that point in time had a balance of $22 billion and a Trust Fund ratio equating to 55 days of reserve. Today DI is sitting at just under two years of reserve and OAS just under four years, to assert that we are in equivalent position to that of 1983 is somewhere between absurd and outright dishonest.

The lesson is clear. Always check their numbers, particularly when they don’t actually provide them.

BTW the numbers do suggest we need to do something about DI. Where SSA had it going to depletion in 2025 in the 2008 Report CBO has now moved that date up to 2019. And the cost of the fix will no doubt be more than the 0.24% of payroll projected by the 2008 Report. But even if that rate doubled the cost of the needed fix would amount to $10 a month from take home pay for a household earning $50,000. Don’t listen to the Henny Pennys running around the halls of AEI (or the newsroom of the Washington Post), the sky just ain’t falling.