Who Scores the Deficit Commission: CBO or OACT?
by Bruce Webb
(My God, can we get any more jargony and wonkish? Well “Si, Si, Puede!”)
When the Greenspan Commission was convened back in 1982 Social Security scoring started and stopped with the SSA Office of the Chief Actuary who are also tasked with researching, compiling and presenting the Annual Report for review and signing by the Trustees, many of whom may not have any relevant training. OACT is by statute and tradition a professional and non-partisan group of technocrats. Sometime after 1983 the role of scoring Social Security started being shared with the Congressional Budget Office, also by statute and tradition a professional and non-partisan group of technocrats. What is more CBO formally agrees to accept OACT demographic projections. So you would expect the top line numbers of both to come in pretty close alignment in regards to Trust Fund Depletion. Well you would be wrong, CBO and OACT have in the past seen pretty wide variations in dates of TF depletion and total actuarial gap. Now in the past decade or so this didn’t matter much because even the Bush push for Social Security reform never made it as far as the legislative process, to my knowledge no bills were submitted, meaning no official CBO scoring. Moreover in the normal course of events there was enough lag between the reporting by SSA and CBO that the divergence between them could go unnoticed since neither stayed in the news past a news cycle or two anyway.
Well this year is different. We have a presidential Deficit Commission which has already announced a focus on ‘Entitlements’, including Social Security, and are prepared to make a recommendation in December, which recommendation if passed through the Senate was last week guaranteed a vote by the House. Meaning that this year the question of scoring is going to come to the fore, in selecting a package of SS ‘reforms’ whose score is going to have the final say? I put this question to a panel of experts with decades of experience and while some gave me pretty definitive answers the consensus was “Bruce, that is an awfully good question.”
Report geekery below the fold.
The two main sources of Social Security scoring are the Annual Reports of the Trustees of Social Security, normally released on March 31st and available here, and CBOs Long Term Projection for Social Security, normally released in August and available here. This five month gap normally results in SSA numbers being internalized in the MSM, with few reporters or columnists noting the difference, with a major exception of Dean Baker, who for a variety of reasons tends to go with CBO numbers.
Well a funny thing happened this year, the Social Security Report did not come out on March 31st, it didn’t even come out on the semi-official revised date of June 30th, and Treasury refuses to commit to a firm date even now, with the best guesses on Capitol Hill suggesting sometime in August. Now there is no reason to suggest that CBO will experience a similar delay they came out with their Long Term Budget Outlook (which has a Social Security component) on time and also released a scoring of thirty different Social Security Policy Options on July 1st. So best available information as of this minute is that we will have two dueling Reports coming out head to head right in time to inform the decision making of the Deficit Commission.
So which one rules? Well we got an interesting hint in an article (interesting in itself) detailing some internal strife in SSA between Commissioner Astrue and Chief Actuary Steve Goss published in the NYT on July 11: Lawmakers Defend Social Security’s Chief Actuary in Clash With Commissioner. The following two sentences jumped out at me (bolding mine):
Mr. Goss’s responsibilities have suddenly increased. Leaders of a presidential commission seeking ways to reduce the federal budget deficit said they would rely exclusively on his estimates to measure the financial effects of proposals to overhaul Social Security
Which suggests that for the Commission’s purposes when it comes to Social Security and Medicare CBO is locked out. But can they equally lock out CBO when it comes time to other spending and tax suggestions? Can they just agree to look at one part of a data table while ignoring another that mentions Social Security?
And whatever the Commission decides what happens when the package hits Congress? In 1983 there was no CBO long term scoring of Social Security, and a Congressional staffer who worked on the legislative package confirmed to me that at least House Ways and Means and probably Senate Finance relied exclusively on OACT. Then again they didn’t have a lot of choice. But in 2010 we know from observation of the Stimulus and HCR legislative process that budget bills BY RULE live or die based on CBO scoring.
To which some people will suggest that it doesn’t matter much, after all the 2009 Social Security Report put the long-term gap at 0.7% of GDP while the most recent CBO scoring puts it at 0.6% of GDP. On the other hand the gap between the 2009 SS Report and the 2010 looks to have stretched out by 15 months (May 13th to mid-August) and performance of Social Security, particularly on the Disability Insurance side, was MUCH more miserable than expected, we can expect OACT to bump that 0.7% up a bit. Moreover each 0.1% of GDP represents maybe 0.3% of covered payroll, no one should be surprised to see CBO scoring the 75 year gap at 1.6% of payroll and OACT at 2.2%, this would simply mirror the similar gaps we saw in the respective 2008 and 2009 reporting.
Why is this gap important? Because a lot of the options on the table score right in that .2 of GDP/.6% of payroll gap between CBO and probable SSA, a package of three fixes designed to meet SSA scoring could be revised to two fixes and still meet the requirements of CBO, a seemingly balanced package coming out of the Commission could be transferred to an unbalanced, and based on history even more worker-unfriendly one, by Congress using CBO numbers to say strip out a cap increase proposal in favor of one focusing entirely on benefit cuts.
There may be little in this world more geekish than focusing on the fine points of CBO vs OACT scoring. But that doesn’t mean it is not important. Your future retirement may rest on which way this one leans.
Well, that’s tragic.
Because the life expectancy of the Trust Fund does not matter a hill of beans. And the difference between 1.6% and 2.2% is immeasurable if not meaningless.
But of course when I tried to tell the “panel of experts” this, they put their fingers in their ears. And now they won’t return my calls.
Way to go, experts.
Dale if the inclusion or exclusion of a proposal to increase retirement age that scores at 0.6% of payroll or 0.2% of GDP depends on which score is picked is that difference still ‘meaningless’?
It is not always possible to simply back up into first principles and simply address ‘the larger picture’, legislation is written line by line, provision by provision.
That is what perturbs me the most about the entire issue. Its chump change looked at from any angle. Even if you think SS is ‘in crises’ the fix is still chump change.
I am becoming more and more convinced that Congress really doesn’t want to have to cash those T-Bills in.
Islam will change
yes. it is still meaningless. but it wouldn’t be the first time Congress enacted a law based on a meaningless “fact.”
my beef with your friends is that they can’t coordinate a publicity campaign that would demonstrate the meaninglessness of the Trust Fund Death predictions. or whether it would take 20 cents per week per year to “save” social security or only fifteen cents.
I think that may well be what Congress is thinking. But I suspect Peterson’s motive has more to do with the inability to find good domestic servants when workers can pay for their own retirement.
Bruce and Y’all–The Commissioner of Social Security (COSS) Astrue is a graduate of Harvard Law with a business background. He is a Bush II holdover and apparently an advocate of privatization. I have the impression he is in the Peterson camp. He is very conservative and was seen by careerists as placed in the job to facilitate Bush II’s unsuccessful bid to privatize SS. He still has a bit to go on his appointment and will have some influence on the outcome of the Deficit Commission’s deliberations.
It’s well known that Goss and Astrue have conflicted on numerous points. Goss has 37 years of service and is highly regarded by other careerists. He came up under the great Robert Meyer who served for at least 40 years as Chief Actuary. No one told Robert Myers what to do and apparently Goss means to follow in the footsteps of his famous predecessor.
It’s encouraging that the SS Subcommittee’s chairman thinks Goss should be the one to crank out the numbers on any proposed changes to the SS program. He has the data, especially historical data, and does not work in CBO’s much more political environment. I’ve always thought CBO responds to the needs of Congress more than it responds to the needs of the electorate. The Chief Actuary has always been more independent and I don’t see why Ways and means needs to change horses in midstream now. The Rule is a problem, but I am more concerned with the Senate Finance Committee. They are likely to go Peterson in a big way and that could be a real problem for Pelosi and whatever good guys there still are around the Hill. Nancy Ortiz
The Trustees Report numbers are just fine. The narrative is marginally fine. They warn about shortages, in fact they overwarn, and they don’t report cheap and easy fixes.
My guess is that the actuaries are honest. The Trustees are not.
I have been afraid for some time that there is a plan in the works to change the format of the Report so that amateurs like me won’t be able to read between the lines as easily.
Why not look up the CBO scoring of policy options and compare them to the OACT scoring of the same policy options? CBO are based on 2010 assumtpions and OACT’s on 2009, but over the long term it doesn’t matter much. They both express the impact as a percentage of the cummulative 75 year deficit.
What percent of the 75 year shortfall does raising te retirement age to 7o have under CBO and under OACT. If the results are similar then what’s the big deal.
CBO projects a r smaller hole to fill but we’ve known that for several years, and since these are very long-term problems it is not as we can’t re-visit the polices in 20 years when we have more data about who is right.
http://www.ssa.gov/history/myersorl.html Robert Myers Oral History-very informative
http://www.angrybearblog.com/2008/06/soc-sec-xxvii-robert-myers-and.html-my take away
Bob Myers just passed away this late winter. A tribute from NASI
Myers started at Social Security a year BEFORE there even was such a thing, being a junior actuary with the folk who planned it out. And spent the decades after retirement still working Social Security, including a stint as Executive Director of the Greenspan Community.
Along with Bob Ball, whose career with Social Security was almost as long (started in 1940, died a couple of years prior to Myers) a giant.
AB link broken
Bruce–Both of these people epitomize the best career public servants have to offer their fellow citizens. Integrity is uncommon in any field, but these guys were legendary. If Goss is half as good as either Ball or Meyers, Congress would do well to listen to him. NO
Well my post before last was precisely on that:
And I don’t know that SSA did a similar scoring, instead their solvency page scores a variety of plans most of which are quite old.
Plus ‘similar’ doesn’t mean ‘identical’, if the difference is about the same size as the score of any particular policy option, say increasing retirement age to 70 then it is a big deal which one you adopt.
And we can’t wait 20 years even though that is in fact pretty much the right policy prescription, the Deficit Commission is meeting RiGHT NOW and their package is scheduled for a vote THIS YEAR, and once locked in would not necessarily be easy to back out. 20 years after the 1983 compromise it looked like overkill, we could have foregone either the retirement age increase or the tax on benefits and still been in reasonable shape. (Today we would be hard pressed to back off either thanks to the current crisis).
Bruce–This issue is being forced by a number of players. One of them is the IMF which has urged the US to reduce its debt and cut retirement/medical outlays for SS and Medicare. It also advises the US to raise taxes, but that part appears to have fallen on deaf ears. The IMF gave a similar prescription for fiscal health to Argentina in the 1990’s. So, Argentina tied its currency to the US dollar even going so far as to make the dollar part of its national currency. Privatized its Social Insurance system and did pretty much everything wanted. The result was an economic disaster. The govt abolished its former pay-as-you-go system and substituted a system of private retirement funds, supervized by administrators selected by business owners. You can read all about the current system at http://www.ssa.gov/policy/docs/progdesc/ssptw/2006-2007/americas/argentina.html.
Chile’s system is also described in this SSA maintained site. The long and the short of it is that after seeing its economy crash, Argentina defaulted on its IMF loans, despite having followed IMF’s recommendations exactly. Meanwhile, the retirement pension is available only after 30 years’ work. The net effect is to eliminate any public retirement system in Argentina and render private plans practically useless. If you really want to cheer yourself up, take a look at this article in media matters about Chile’s truly horrible pension system. http://mediamatters.org/research/200506150009 So much for privatization.
It would be reassuring if the Deficit Commission told the privatization guys to just go fly a kite, but don’t think that would happen! Nancy Ortiz
Y’all–Another recent piece that may interest you. Nancy Ortiz
late answer to Bruce
Bruce, if you know that the commission, or the congress is going to use X scoring when you would rather they used Y scoring, you can waste a lot of time arguing about whose scoring should be used. Or you can just accept that they will use the X scoring. Then you can go on to show that the scoring is meaningless.
We have shown that 2.2% actuarial gap reduces to something like 25 cents per week per year. We can show that that is a trivial “burden” compared to raising the retirement age.
And on a related note… when you have folks screaming about high taxes and Social Security threatening to raise taxes to the breaking point, it would not seem to be the best time to be offering “solutions” that raise the taxes of people who don’t get the benefit.
Dale I don’t ‘know’ that the Commission is going to use OACT scoring, I know that the NYT is reporting as much. I also do not know whether Congress even can be bound by that decision under the rules. Nor have I made an attempt to argue that one score is preferable to the other. I am pointing out that the ultimate resolution of those two questions is important tactically.
You think this tactical question is worthless in light of the larger strategy. Great, that is what comments are for. I don’t find your argument compelling. Nor do I see anything in this post or any other that suggests I am in favor of raising the cap without a corresponding benefit credit.
As you know I find the line of argumentation that reduces this to pennies per day or dollars per year very powerful, in fact it is one I deploy regularly here and even more regularly everywhere else (because you kind of have it covered for AB). But ‘powerful’ does not translate to ‘only way we should even consider’.
You essentially are arguing “Look at this from MY perspective”. My argument instead often takes the form of telling opponents “Even if we look at it from YOUR perspective using YOUR metrics, it doesn’t add up”. I don’t see either one as inherently invalidating the other.
CBO endorsed your answer. It is option 2: 2% over 20 years. Or perhaps option 3: 3% over 60 years. Mathematically they work out very close to the NW Plan and the various variants on that you have suggested.
And NASI supported your answer. It is option 7c in http://www.nasi.org/sites/default/files/research/Fixing_Social_Security.pdf
“Option #7c: Schedule a Very Gradual Contribution Rate Increase Over 20 Years. To
avoid abrupt changes in Social Security contribution rates, this option would schedule very
gradual increases in the Social Security contribution rate (one-twentieth of one percent per
year over 20 years for employees and employers, each), beginning in 2015. By 2035, the
Social Security rate would be 7.2 percent for both workers and employers. In 2015, the
increase for an average earner making $53,085 then would be $26.50 a year, or about 50
cents a week. It would reduce the 75-year deficit by 1.39 percent of taxable payroll or by
about 69 percent. Dale Coberly, a frequent commenter on Social Security, recommended a
gradual tax increase of this sort (Coberly, Larson and Webb 2009).11 “
They were going to credit it entirely to me but I pointed out the key work was done by you and by rights you should be the lead author. And the NASI piece was scored by OACT. So I am not sure I understand the reason for the kvetch here. Actually I do, but it has nothing to do with the validity of your proposal.
Dale I am afraid they have written you off as Johnny One Note, insisting that this specific line of argumentation be included in every discussion on this topic. And perhaps going to the well of motive too often. A certain famous blogger recently added is taking the same basic approach. From a bigger resource base but with some of the same response.
Bruce–May I inquire who the famous blogger is? I’d like to see what he has written on this issue. Thanks. NO
but that is my whole point. the enemy is “one note” and that works. it happens that my “one note” is the right answer, a concept unfamiliar to the innumerate and other folks who think that taking the political average of all players is the answer to everything.
in any case i could have modified my one note but they didn’t care to advance any real arguments. only “we dont’ know you and you are not respectful enough of the great names among us.”
so, yes, “this specific line” needs to be included in every discussion: the cost of “fixing” Social Security is a twenty cents per week per year increase in the payroll tax… the insurance premium of those who will get the benefits.
all the rest is distraction and confusion and will be ignored by the Congress…. and never heard by the people. certainly nobody will ever show them why it is true.
I don’t see one as invalidating the other either. And I quite approve of your using the “issue” as a point of departure to educate the people. In fact, I am using the issue as a point of departure to educate the people.
I think the ‘oo scores ‘oo issue is ultimately silly, except as a conversation starter. So don’t feel like you are being attacked. Of course the fact that you don’t find my argument compelling worries me.
I do have a major issue with the “policy experts” who think they are defending Social Security because they are unable to come up with a clear message that people and congressmen can understand, and repeat it often enough so they do understand it.
The rich would not be interested in having their benefits raised in payment for having their tax raised. They already know how to make money with their money and get a better return than SS. It’s the poor and poorish for whom social security, insurance, is a good deal. essential. they need to be told how cheap it is.
the problem here is the NASI proposal only goes half way. leaving the attentive reader to wonder why if they can solve half the problem with one tenth of a percent per year for twenty years, they don’t solve the whole problem with one tenth of a percent per year for forty years.
instead they will leave the geniuses in congress to try to solve the “other half” by raising the retirement age or raising taxes on the rich. (guess which).
Of course congress doesn’t want to cash in the T-Bills, that means either the deficit is going to skyrocket or they have to cut spending somewhere else….not good politics for them, and they don’t have any backbone.
It only looks like chump change now, becuase since they don’t have any backbone, they haven’t filled the American people in to the fact that growth is something of the past, so when the boomer situation hits while jobs decrease, and revenue decreases we have a real problem getting worse as we move forward.
The chump change now, becomes another chump change increase tomorrow, and another chump change increase next week, and then the problem gets exposed next month, which is too late.
Bruce and Coberly are right, but they just hoping for the best, and nothing wrong with that, in the end it will be chaos.
Since I know exactly what Bruce’s response is going to be, let me respond for him…..Yes…I know I did not provide the numbers to you, but I don’t have to…..you already know the numbers, your just gambling with your confidence the government will either end up socilaizing all this, or that we will have a miralce of growth in the near future.