Current Law Social Security: "Scheduled" vs "Payable" Benefits

Okay, more jargon. But important jargon because the policy proposals are starting from different baselines themselves defined by this jargon. So while some of the following is basic, it is equally a rhetorical (in the classical definition) baseline.

Under current Social Security law future benefits are set by a formula. For a given individual this formula starts from income history but if we take total benefit payouts in the aggregate we have cost totals primarily driven by employment numbers, Real Wage, and CPI. And this aggregate number represents 99% or so of the category that the Report Tables label as “Cost”. These projected future benefits are in turn offset by projected income deriving from one main and two minor sources, that is FICA payroll tax, tax on certain benefits, and interest on Trust Fund assets, with the totals being labeled in the Tables as “Income”. In an ideal world the trend of projected Income would exceed projected Cost in just the amount needed to maintain a specific, relative level of reserves. This state of affairs for any given year or set of years is called “actuarial balance” and if projected to continue beyond the 75 year actuarial window, and with an upward trend is called “sustainable solvency”.

As it turns out current mid-range projections of future employment, Real Wage, CPI, payroll income, tax on benefits, and interest on Trust Fund assets do not project “sustainable solvency”, instead there is a projected gap between total income and accumulated assets available to pay out future benefits and total projected costs. That is if we simply assume ALL mid-range projections, something that is labeled in the Reports “Intermediate Cost”  and follow current law that requires payment of full “scheduled benefits” as long as total income and assets allow those benefits to be “payable”, at some point the latter level falls below the former. The state in which “scheduled benefits” exceeds “payable” can be called “insolvency”, or working up the shrillness index “crisis” or even “bankruptcy”.

But before we start hyperventilating it would be useful to slow down and actually examine the financial and legal implications for actual beneficiaries at this “crisis” point. Because one thing we know for sure the end result will NOT be “no check”. Maybe not the SAME check on the SAME day, but the system won’t grind to a complete halt. To see what is likely to happen under current law and realistic political projections you will need to follow under the fold.

(Lucky you, a computer crash wiped out a bunch of text. So a shorter version.) The takeaway most readers of the Social Security Report would have is that at the point at which projected “Income” (which defines “payable benefit”) falls below “Cost” (which defines “scheduled benefit”) current law simply reduces the latter to the former overnight resulting in around an immediate 22-25% cut in benefit checks.

But this is where the two groups I will call fairly neutrally Social Security “Defenders” vs “Reformers” start talking past each other. While each sees this cut as tremendously disruptive “Defenders” see that disruption in the form of Gramma spending her remaining shopping dollars in the Catfood Aisle, while “Reformers” see armies of Greedy Geezers storming Capitol Hill in their Lexus’s demanding their God-given right to pay Country Club dues with their full scheduled Social Security check.

As such their definitions of “Fix” and even “Preserve” take very different forms. I like to think of this in the logicians terms of “direction of fit”. “Defenders” want to “fix” Social Security by ensuring that “payable” is fitted to “scheduled” while reformers prefer fixes that will defuse the crisis by fitting “scheduled” to “payable”. Both sides would argue that their respective fixes avoid the dreaded “slash” in benefits in the interest of “preserving” Social Security, it is just that “Defenders” are preserving a particular projected standard of living while “Reformers” are seeking to preserve a certain political peace, in their terms an avoidance of “intergenerational warfare”.

And as a “Defender” I am even willing to concede that certain “Reformers” are actually sincere. Where I see a perfectly fixable case of “under funded” they see an equally fixable case of “over promised”. Which is one of many reasons why the Social Security debate is not really one of numbers, but is really at root one of values and perceived equity. Which is not an argument for civility, just a suggestion that not all “Reformers” are liars or fools. Heartless sociopaths willing to use whatever tactics and number twisting they can to keep Greedy Geezers at bay? Sure. Fools? Well not ALL of them. And given a generous interpretation of whether “scheduled” or “payable” is the correct baseline to build your analysis even liar is too harsh. For some. Who simply consider themselves hard-headed realists.

(Dan here…paragraphs added after the jump for readability)