Sky is not falling on Social Security


The above table is from the National Academy of Social Insurance’s (NASI) Social Security Brief: Social Security Finances: Findings of the 2009 Trustees Report, a valuable summary from a group broadly supportive of traditional Social Security. If Social Security really was in a serious crisis you would expect the right hand column to show steady increases, a policy of ‘Nothing’ which deducts one year of potential revenue or cost savings from any given ‘fix’ should make the gap for the next year wider. And we can see that pattern in the years from 1993 to 1997. When Krugman said Social Security was in trouble back in 1996 he was right. When people like Bush made the same claim in 2004 they were wrong, the earth had moved under their feet. When I first starting blog commenting back in the 2001-2002 period I was pretty damn confident that the economy would simply grow out of crisis.

Well eight years of Bushonomics has made me more wary but on the whole still hopeful, because after all we are still way improved from where we were in 1997. On the other hand you can’t deny that the current recession is not helping. Something that is even more apparent if you examine the DI (Disability Insurance) component of Social Security in isolation from the OASI (Old Age/Survivors) component.

Last Sunday Coberly and I released the first iteration of the Northwest Plan which outline two different methods of fixing a combined OASDI program via payroll tax. One called ‘Tenth Now’ starts a fix in 2010 and gradually raises payroll tax by 0.1% for 20 years and then freezes the rate until 2053. The other called ‘Trigger’ instead targets the date that Social Security falls out of Short Term Actuarial Balance which under current projections is around 2028. ‘Trigger’ which in reality is just a modified version of our previous plan of ‘Nothing’ is a better policy option. But only if you combine OASI and DI into OASDI (as is usually done). But ‘Nothing’ is not really a plan for DI which actually fell out of Short Term Balance last year and has been running cash deficits for two years before that. So as soon as Coberly gets done running the numbers we expect to release an actual policy proposal for a Real Social Security Fix which I am tentatively calling ‘DI Now/OAS Trigger. The DI Now component will set some small increases for DI in place, while the OAS Trigger will continue to target Short Term Actuarial Balance as the trigger point for action.

The Northwest Plan is not the last word but what it does is establish a basis for pricing other plans. With NW Plan numbers in hand we can reasonably ask say what the cost of avoiding an increase in retirement age would be, or what the cost of avoiding a switch from wage based indexing of initial benefits to price based indexing. What are workers actually being asked to sacrifice to avoid the NW Plan price? I think when workers get that answer they will opt to stick with traditional Social Security and ante up the quarter.

The initial version of the NW Plan is in the hands of some people at SSA, as soon as we have spreadsheets for DI Now/OAS Trigger using 2009 numbers that will get forwarded on as well. But the truth is that we can fix Social Security for literally pennies a day per worker and don’t need to pay attention to hysterical Henny Penny’s. Social Security is mostly not broken and the part that kinda is (DI) is fixable. And we have (or will shortly) numbers to prove it.

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