Upcoming Attractions in Social Security
by Bruce Webb
Well it has been a relatively quiet winter on the Social Security front, but we are fast coming up on what I only half-jokingly call the “Bestest Day of the Year”, the release of the Annual Report of the Trustees of Social Security. The Report has in many recent years come out reliably on the last day of March but can be as late as May (as it was last year, perhaps because the Trustees were not all in place). When it does come out it can be found, viewed and downloaded at SSA: Trustees Reports. The first thing I look at is of course the bottom line, what the number is for the actuarial gap and the date for Trust Fund exhaustion, but the second thing I look at is the magnitude of the change from 2009 and more importantly the reasons for that change. For example a couple of years ago the outlook brightened more than I expected, and a few years before that had darkened more than expected. Well it turned out that changes in assumptions about immigration in the first case and interest rates in the latter accounted for almost all the difference, very little was actually due to short term economic projections. So if there is anyone out there really prepared to dig into the tables it might be worth your time to review the 2009 Report, or at least the 15 page Summary, both available at the link.
The Report takes on some new urgency this year because of the appointment of the President’s Deficit Commission, which really should be called the Entitlements Commission. Because its leadership has made it clear that taxes and military spending will NOT be on the table, this will all be about what Co-chairman Alan Simpson calls the Big Three: Social Security, Medicare, and Medicaid. And the deck has been stacked. For those who haven’t been following the Commission will have 18 members, six appointed by the President, only four of whom can be Democrats, six by the House and six by the Senate. And although there is a requirement for a 14 vote super-majority to advance a recommendation, something that would normally insure gridlock, it appears that Obama is appointing five people favoring ‘reform’ and only one firm defender of Social Security (Andy Stern of SEIU). Since it is a given that all six Republican Congressional members will be in favor of gutting Social Security, and knowing that of the three Senate Dems Durbin, Baucus and Conrad only the first is a lock to support Social Security as currently configured, blocking 14 votes means getting all 3 of Pelosi’s representatives, and we are already seeing reporting of intense pressure to appoint “at least one” Blue Dog. Meaning there is great risk of having ‘reformers’ walk in the door with 14 votes locked down. And the only way supporters are going to be able to fight back is to make sure they are using real numbers, and that their proposals don’t play tricks like applying a 5.2% worker paid fix to a problem scored 1.92% (as has been done before with LMS).
And along with posts dealing with the Report release and the Commission expect some re-caps of the ins and outs of Social Security finance itself. Familiar territory to some here, but necessary for people just entering the fray. But enough for today, the basketball is starting. Arrivederci.
But but but Matt and Ezra told me that having super majority was a foolish thing! That somehow it was impossible to pick a panel that got a result that would attack Social Security!
Amazing how a deficit run up by the rich must be paid off by the poor…
Yes they did. Matt and Ezra just don’t seem to grasp the ideological component involved. The Right hates Social Security not because it is some sort of failure, it is quite the opposite, or that it actually presents any real threat to the deficit going forward, because it clearly doesn’t. They hate it because it was the template that led us to Medicare and which in turn is leading us to more government backed health coverage and might if unchecked lead to full fledged Social Democracy at some point in the future.
A Social Security system that is solvent and worse recognized to be so is the Right’s worst nightmare, it would validate the vision of FDR, something to be avoided at all costs. We at Angry Bear have shown repeatedly that you can deliver 100% of the scheduled benefit going forward with what amount to a tiny series of payroll tax tweaks. The opposition will not even discuss it, the guidelines formally set us by Bush in 2001 still mandate that payroll taxes can’t even be part of the solution. Because they know the question is not one of finance, in the end it is all about ideology. Something the Boy Wonders of the blogosphere can’t quite wrap their heads around.
The Supermajority condition always boiled down to one thing: Admin buy-in. If Obama decided that Social Security should be on the table and that he would entertain wholesale changes to it, then his choices to the Commission would reveal that. If he was really interested in an even-handed discussion that had all options on the table his choices would reveal that as well. So far the signs are not good, at least three of his appointees are on record for cutting Social Security: Bowles, Simpson, Rivlin. I am assuming the second Presidential R appointee will be too and while Stern is a strong supporter and I haven’t examined the last Dem in depth Obama has shown himself willing to weight his people 4 or 5 to 1 or at best 2.
The problem is that even if supporters end up with five firm votes for keeping Social Security: Stern, Durbin and 3 House Dems, the resultant possibility of a 13 to 5 deadlock puts supporters in the position of being both in denial and of being obstructionists of the ‘bi-partisan’ majority. The only way out of the trap is to win the numeric case on its merits. Laying out the base of that case is my project here for the next weeks and months.
“(SS) it is some sort of failure, it is quite the opposite”
Yes, because there is no better financial advice than to invest roughly 12% of your income, with a 40+ year time horizon, at age 21 in U.S. Treasuries. And you keep wondering why the little people are falling behind. What group of people has a porfolios severely overweight in on-demand accounts, U.S. Treasuries, and one single piece of property (that they are propably leveraged like Fannie and Freddie)?
And now I know you are going to trot out and say, look at the S&P 500 over the last 10 years. I repeat 40 YEAR TIME HORIZON!
Here are a few CBO reports and projections that captured my attention during the winter:
An Analysis of the Roadmap for America’s Future Act of 2010
January 27, 2010
http://www.cbo.gov/publications/bysubject.cfm?cat=11
and
http://www.cbo.gov/doc.cfm?index=10851
and
http://www.cbo.gov/ftpdocs/108xx/doc10851/01-27-Ryan-Roadmap-Letter.pdf
*Note the CBO charts
Fiscal Policy Choices
presented by Director, CBO
March 8, 2010
http://www.cbo.gov/doc.cfm?index=11277&zzz=40483
and
http://www.cbo.gov/ftpdocs/112xx/doc11277/CBOPresentation-NABE_3-8-10.pdf
Monthly Budget Reviews
CBO
http://www.cbo.gov/publications/bysubject.cfm?cat=35
Combined OASDI Trust Funds
January 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010/oasdi.pdf
Combined OASDI Trust Funds
March 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010b/OASDI-TrustFunds.pdf
.
The SSA finally updated its database, allowing for a review of calendar year data. Notably, the cash flow balance for calendar year 2009 was only $3.34 billion whereas the fiscal year 2009 cash flow balance was $19.358 billion.
Recap:
Cash Flow Analysis for the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds
($ billions)
Fiscal Year 2009
807.007 Total Income
-117.963 Interest
689.044
689.044 Total Income less Interest
-669.686 Total Outgo
19.358
Calendar Year 2009
807.490 Total Income
-118.349 Interest
689.141
689.141 Total Income less Interest
-685.801 Total Outgo
3.340
Source:
http://www.ssa.gov/OACT/ProgData/allOps.html
.
CBO projections continue to reflect declining cash flow balances for the SSA’s OASDI trust funds.
SSA Combined Trust Funds (OASDI) Cash Flow Projections
Combined OASDI Trust Funds
CBO March 2010 Baseline
FY 2010 -$29 billion
FY 2011 -$21 billion
FY 2012 -$13 billion
FY 2013 -$4 billion
FY 2014 +$5 billion
FY 2015 +$4 billion
FY 2016 -$5 billion
FY 2017 -$19 billion
FY 2018 -$36 billion
FY 2019 -$57 billion
FY 2020 -$77 billion
FY 2010-2020 Total -$247 billion
—-
Combined OASDI Trust Funds
CBO January 2010 Baseline
FY 2010 -$28 billion
FY 2011 -$20 billion
FY 2012 -$11 billion
FY 2013 -$2 billion
FY 2014 +$6 billion
FY 2015 +$6 billion
FY 2016 -$3 billion
FY 2017 -$17 billion
FY 2018 -$34 billion
FY 2019 -$54 billion
FY 2020 -$74 billion
FY 2010-2020 Total -$231 billion
—-
Sources:
CBO – Budget Supplemental Data
http://www.cbo.gov/budget/factsheets/factsheets2010.shtml
and
http://www.cbo.gov/budget/factsheets/factsheets2010b.shtml
Combined OASDI Trust Funds
January 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010/oasdi.pdf
Combined OASDI Trust Funds
March 2010 Baseline
CBO
http://www.cbo.gov/budget/factsheets/2010b/OASDI-TrustFunds.pdf
.
Well, friends, my wife and I–nearly penniless wretches compared to most of the commenters here, I’ll wager–each opted for Social Security at age 62. It has saved our freaking lives. Now we aren’t so penniless, just wretched, and if it weren’t for my debts, we’d actually be OK with SS, her meager professor’s pension (yes, meager), and my experimental income streams.
I know it’s fashionable to say, “Aw, it won’t be there for me when I get old, anyway.” Well, that’s what I thought 15 years ago, and now I’d be sleeping under a bridge without it. So it WAS here for me, and I hope it is for everyone. We all pay for it, after all, and my main point is, YOU WANT THIS PROGRAM! You absolutely do. It’s a godsend, and the way this economy is going, more people are going to be in a position of needing it than have a current clue. So save it, brothers and sisters. You’ll be glad you did!
Obama is going to be damaged at the polls for cutting Medicare as part of HCR. Messing with SS means he will not be elected. Old people vote.
Jay
when you go to retire you don’t have a 40 year time horizon. if you would come out of your fantasy life long enough to look at the real world and what happens in it, you would understand why social security is essential for working people. trust me, after you have put 12% of your income (half of which you would never have gotten without Social Security), you have plenty of money left over to invest in your favorite sure thing on Wall Street. I guarantee, by the way, that if EVERYBODY put their money in stocks the outcome would be much worse for you than it is when “retirement savings” is managed “pay as you go”.
If he messes with SS he will be hurt. But you have to examine exactly what is getting cut out of Medicare to see that impact.
First of all a very big part of the cut is to Medicare Advantage. Now I don’t doubt that people like their MA because it offers some additional benefits and/or less cost sharing, but the only reason the private companies can offer those benefits is because they get reimbursed at 15% better than traditional Medicare, whether retirees will really revolt because they lose a free gym membership when they decide to drop MA for original Medicare is an open question. And a lot of the rest of the savings is in cutbacks to areas where there has been substantial waste and abuse or actual violations of current law, private companies getting fat providing motorized scooters to people who really have no medical need for them and billing categories of custodial care to Medicare that are not actually provided for under the law. The Republicans are talking like this is some sort of rationing across the board where it is actually a lot for targetted. Cutting $500 billion over ten years means $500 billion less in payment to providers and not necessarily $500 billion less in needed services.
And of course every Republican proposal out there actually cuts more from Medicare over time, check out the Ryan Roadmap.
John you would be surprised to know how many of us are penniless wretches, or at least not plutocrats. We have our tenured professors sure but we also have retirees, small business owners, unemployed realtors, and public school teachers, and that just among the front page posters. You’ll notice that unlike a lot of other econoblogs Angry Bear doesn’t traffic much in stock tips and hyperfocus on the S&P 500, some of us are just hoping our public pension funds don’t go belly-up.
“Yes, because there is no better financial advice than to invest roughly 12% of your income, with a 40+ year time horizon, at age 21 in U.S. Treasuries.”
Social Security is not an investment. It is an intergenerational compact. Failure to understand the difference is a large part of the problem. You have to add to your ROI the amount of taxes and direct support of the elderly you would otherwise by paying through your lifetime, the phase in of Social Security Title II, largely complete by 1957, allowed the phase out of the General Fund SS Title I program which in turn replaced a tax based State system of old age pensions. Only by ignoring these by now invisible offsets does your argument make much sense. Or of course by denying we have any societal responsibility at all for dignity in retirement.
Bruce
they are working on that next. NPR interviewed mayor of Los Angeles last night. focus was on pensions bankrupting the city. fact unnoticed was that a hundred dollars a year extra tax would save the city from having to cut about 3000 dollars in wages (including pensions). now i don’t know if LA public employees are worth that 3000 dollars (or the hundred it costs the taxpayer), but the fact is THE QUESTION WAS NOT ASKED.
Bruce
you are still the man to go to for Social Security facts and figures.
But you give me heart stoppage when you say “it has been a quiet winter.” They have been sharpening their knives, have the city surrounded, and are about to cut off your water. But yes, it sure is quiet out there.
Too quiet.
Bruce
I guess I can’t win this one. Of course it is an intergenerational compact. and they Fail to understand it. including the experts.
but you spoil your case, in my opinion, by referring to “societal responsibility for dignity in retirement.”
I agree that we have such a responsibility, but the average voter does not understand the concept. He wants to know what’s in it for him. And it is hard enough for him to think forty years ahead…or ten years. Making him think he’s spending his money for someone else’s granny makes him secretly angry… he may or may not admit it depending on how long he’s been a Republican… even paying for his own granny would gall him. Try to explain to him that what he is really doing is paying, now while he has the money, for his own retirement when he may not.
Even there you will never convince the bozos who know they are never going to get old, and when they do they will be rich, and have a job that they love, and their knees won’t give out.
Or that they can make money in an economy where everyone else is poor.
“….but the average voter does not understand the concept. He wants to know what’s in it for him.”
If that’s so, why is Social Security known as the Third Rail of American politics, something that politicians fuck with at their peril? Even Ronald Reagan couldn’t touch it. Clinton couldn’t touch it. Bush couldn’t touch it. They all wanted to.
It’s not the average voter who wants to get rid of Social Security. It’s the right-wing and “centrist” elites who want to get rid of it, for the reasons Bruce gave. Not because it isn’t popular — it is. Not because it doesn’t work — it does.
This reminds me of something I kept hearing during the past few months of debate over “health care reform”, an Orwellian term if there ever was one. Lots of progs and libs and even some leftists derided Joe Sixpack for opposing single-payer / a government-run health system. But in fact, all the polls show consistently that Joe Sixpack wants a government-run health care system. Who opposes it? The same corporate elites who oppose Social Security, of course.