CBO 2013 Economic Outlook: Soc Sec Trust Funds
By request of frequent AB commenter and SS contrarian Bruce Krasting. He claims vindication of claims from four years ago that the Trust Funds would top out at a much lower level than then estimated. And there is some support to be had here. Also lots of numbers and data points. I’ll have my say in comments, over to you all.
http://www.cbo.gov/publication/43907
Home page for 2013 CBO Budget and Economic Outlook: Fiscal Years 2013 to 2023
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43890_OldAge%20SurvivorDisabilityInsTrust%20Funds.pdf
PDF original of OASDI TF Table
Bruce
Krasting has written me about this. All I can say is what I said then: This doesn’t matter.
The Trust Fund is SUPPOSED to “run out.” The date doesn’t matter.
What matters is that the payroll tax be adjusted to meet the benefits that the people will need to live on when they can no longer work.
That will happen at about the present retirement age, whatever they do the age they allow those people to collect SS. And those people will need about the present replacement rate, whether that turns out to be more than “inflation” or less. Most economists, even, understand that “poverty” is measured relative to the rest of society, not according to the standard of living of some imaginary base-line.
I am not saying this for Bruce’s benefit. He knows. Or at least knows that it what I have been saying for at least four years.
I am saying it in the hope that anyone who hasn’t already heard or understood it will try to think about it.
http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf
Perhaps the key table is 2-1 on pg 42. Among many other data points it projects calender year unemployment from 2015-2018 to be an average 6.1%. If there is one thing that is clearer than clear Social Security financial health gets better with more people working in covered employment. My question would be whether these levels of unemployment are really the new NAIRU or whether there could be some targetting that among other things would assist TF balances.
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Just to clarify my understanding: it’s not the Trust Fund that runs out, because revenues and benefits are always run through the Trust Fund. It’s the surplus in the Trust Fund built up to accommodate the baby boom generation that was always intended to “run out” when the unusual bulge from that age group (1945-65) has moderated. The last of the baby boomers will retire in 2030 (age 65) to 2032 (age 67). Numbers of retirements a few years later will be down as much as 25% from those at the peak of the boom. As a percentage of the adult population they will be down even more. The fear-mongers who wail about the aging population tend to forget or ignore the fact that it’s not a straight line going upwards forever.
After the surplus as used up as intended, it’s a question of what revenues are needed on a pay-as-you-go basis (more or less) to make Social Security benefits at least as minimally acceptable as they have been. How good are our abilities to project revenues — economic performance — 20-25 years from now?
Correct?
The CBO report shows that income and expenses will be equal ($959b) in fiscal 2016. In other words, the TF will be in decline during the 4th Q of 2016.
The SSTF 2012 Report has the Fund reaching its peak in 2022. It expects the TF to grow to in excess of $3.1T.
So this milestone is happening 6 years earlier than anticipated. The TF will rise to $2.8T before beginning to decline. This is well short of the SSTF assumption of $3.1T.
Coberly says this is no big deal. I say it is. Time will tell who is right.
I don’t think the CBO report is a game changer. But the 2013 SSTF report to Congress will be a game changer. The SSTF will be forced to accept the assumptions of the CBO.
KISSWeb
correct.
Bruce is right that economic performance will determine how generous SS can be…. that is how generous “we” will have to be when young in order to give ourselves enough to live on when we are old.
i don’t think the rate of change in the amount needed will ever be great enough to cause any real stress… any more than normal economic changes, like the interest rate, or the price of bread..
the beauty of Social Security is that the way it is designed, even if we all get poorer, we can still “save” enough of our own money to be able to eat and pay rent when we are old.
the fallacy that Krasting and others live under is that “we always have to be geting richer.” that’s nice as you can get it. But SS is designed to take care of you if you don’t. And it … we … can take care of us even if we all get poorer at once.
It’s just a matter of ordinary prudence… saving enough of even a lower pay to have enough to live when you can’t work at all.
What SS does is protect your savings from inflation and market losses, and insure you against being so much poorer than “average” that even you protected savings would not be enough.
as of today, however, the prediction is still that even with the lousy economy we will be twice as rich in 2070 as we are today, and we can pay for a benefit twice as high over a longer life expectancy just by raising our tax about eight cents per week each year.
Krasting appears to think this is a big deal because he doesn’t think we are smart enough to raise our tax less than a dollar a week each year.
Instead he wants to “means test” Social Security.
Which means that most of us would be paying a 12 percent tax and getting nothing back.
IT’s why I said you have to think about this carefully.
Krasting, not really.
For one thing there is no “the TF”. Instead there is a DI Trust Fund that has been in ‘primary deficit’ since 2005 and in overall ‘deficit’ since 2008 and which projects to go to zero (more precisely reduced to daily revenue) in 2016. This result has long been baked into the pie, you could go back a dozen Report years and not see that much difference in outlook for DI.
There is also the OAS Trust Fund which went into ‘primary deficit’ in 2011, some six years ahead of the point it was predicted to a decade ago, but is still in ‘surplus’ and will remain so until 2020, three years or so sooner than was predicted some years back.
That is you have two anticipated events on two different timelines slipping along those timelines in response to the same macroeconomic factors, especially unemployment.
But nothing actually switches in Q4 2016 except the result of a theoretical (and useful) calculation that combines those timelines into one but doesn’t represent any particular reality on the ground. Instead you are over interpolating. In 2016 DI will over the course of the year not have enough resources to pay full scheduled benefits. Something will have to be done because legally the SSA has no authority to either increase revenue/borrowing or cut benefits without specific act of Congress. That is a crisis. One that has been apparent since befor I started blogging on this a decade ago.
In 2016 OAS will over the course of the year HAVE enough legal resources to pay full scheduled benefits just as it did after it went to ‘primary deficit’ two years ago, by drawing on its legally distinct (from DI) TF which in fact will still be growing year over year compared to 2015.
Operationally nothing changes in 2016, DI having in one sense been ‘broken’ since 2005 or 2008 where OAS having been ‘broken’ since 2011 or conversely not set to be broken at all until 2021. Is it worrying that those dates for OAS changed from 2017 and 2023? Yes. Which is why people should have started listening to Dale four years ago, we would have been that much more along the way to a fix and had the mechanism for that fix in place.
But does 2016 mark any important inflection point in and of itself? No, not unless you take certain top line numbers combined for convenience and try to drill down and insert some ‘precision’ into a process that doesn’t actually exist, that is the day over day, quarter over quarter management of a OASDI Trust Fund that on a process level doesn’t exist.
Your email to me presented 2015-6 as some apocalyptic trigger point leading to some run away process. By highlighting one data point that had some validity. But in the context of the whole data table and it’s assemplege of data points actually signifies little to nothing.
Which is why I like to show my work. Unlike some who just show their answers.
I think Krasting has a mind that responds to tabloid headlines. with no capacity for reasoning in a cause and effect manner, much less keep in mind what it is we were trying to do in the first place.
It’s as if he finds he has to walk to the store to buy bread. The store is a ten minute walk away. Just as he is tying his shoes, he gets a call from his brother who reminds him that due to some construction along the way,he will have to detour an extra block adding another one minute to his walk. He throws down the phone and throws himself on the floor kicking and screaming. Oh, NO! It is the end of life as we know it. But then, he has an idea. There is still plenty of dog food in the pantry. So he says, lets feed the kids dog food and that way we won’t have to walk that extra minute to the store to buy bread.
From the point of view of the general fund, SS problems showed up in 2003. That is where surpluses stopped increasing. None of these “milestones” really means anything, though.
As Bruce W observed, higher emplyment makes financials look good. As Bruce K observed, CBO projections of financials are lower than they were four years ago. Both are right because CBO did not project how slowly emplyment would improve. Back in 1997-2005 they underestimated employment.
It does not take a genius to figure out that actual fluctuations in the economy will exceed CBO projections. Fortunately, the TF works to even things out, even though many people do not understand that that all it really does.
The 2016 date has no operational significance to SS.
But this will bring forward the date where OASI cuts are required. That date could now be 2028. (DI gets rolled in, as you said).
I think we all agree that SS needs a minimum of 1 year in the TF. Technically, this brings the “end date” for SS to around 2026-28.
That is 13 years away, not such a long time at all.
I think we agree that the current law on this is flawed. It makes no sense to set SS up for a fall in 13-15 years where there are across the board cutbacks of 25%+. But that is exactly what is now programed to happen.
There’s gotta be a better plan than that. And plans that add to SS PR taxes are not a political option. You can say they work on paper, but they are not feasible in the real world.
Obama is not not going to raise PR taxes on workers. Read this NYT article today:
NYT today – Payroll tax hike hurts working poor the most
http://www.nytimes.com/2013/02/08/business/restored-payroll-tax-pinches-those-with-the-smallest-checks.html?ref=business
“There has got to be a better plan than that”
Oddly that is true and it is/was called the NW Plan for a Real Social Security Fix vers. 2009. The NW Plan was based on a concept of Dale Coberly’s as modified conceptually and in certain details by a couple of (then) Northwesterners named Arne and Bruce W. (No coincidence)
Under the NW Plan the action point is selected as precisely that time when either DI, OAS or combined OASDI fail the test for ‘Short Term Acturial Balance’. Which works out to right around 13 years before the actual crisis point of TF Depletion, right in line with the timetable you suggest.
Now taken separately DI actually failed that test back around 2004 and action (whether on the lines of the NW Plan or not) should have been taken then. On the other hand OAS is still a few years away from failing the test, which means that plans can be prepared for implementation but not have to go into effect right away. Or we could take a combined OASDI which (since DI has already failed) is that much closer to test failure and more or less immediately implement a combined plan that would initially allocate most of the fix to DI and only phase in the parts related to OAS if and when needed.
So Krasting. WELCOME TO THE NW PLAN BORG. YOU WILL BE ASSIMILATED.
After all it meets all your professed criteria. Except imposing unnecessary benefit cuts on purely ideological grounds. Because your argument that payroll tax fixes are not “feasible” is just self serving special pleading to which the proper answer is ‘Sez You!’
The NW Plan by design has zero calls on the wealthy to pay more tax, it doesn’t even change the cap, all of the short term costs fall on current workers and current covered income. Moreover do to the requirements to preserve reserves it actually SAVES General Fund taxpayers TRILLIONS of dollars of transfers to redeem current TF assets, which instead are all retained. Moreover it AT A STROKE eliminates between $3.5 trillion and $15 trillion in socalled ‘unfunded liability’ over 75 years or infinite future OVERNIGHT at NO COST to capital or upper income taxpayers.
This plan which by some measures totals $20 trillion or so in savings for the GF over its (perpetual) lifetime is per you just “not feasible in the real world”. Well why not?
Cuz Krasting Says? Maybe we should ask the workers (and GF taxpayers) instead.
And Krasting if you don’t grasp the difference between a 2% reduction in payroll that happens overnight compared to a 20 year and more phased in of FICA increases that on a take home basis are literally 1/40th of that in any given year then I lose hope.
Devoting a FUTURE 0.05% share of a projected 1% increase in FUTURE Real Wage with the goal of delivering 100% of the current scheduled benefit with no changes in future retirement age is a little different proposition than resuming a payment of 2% that still just buys you a 25% cut from that schedule. Calling both of those just a generic unacceptable increase in payroll tax is polemic and not any reasoned analytical judgement. The costs and ends are just not commensurate.
Bu, but, but, Bruce
Krasting read it in the Times. So it must be so.
Once again, the fallacy here is that “we shouldn’t have to pay anything for our own retirement.”
And, as a personal anecdote: when I was the poorest I have ever been, even a 5% pay cut would not have made a material difference to me.
What would have made a difference was perception. And I know that because when instead of giving me the 5% raise I expected, my employer devoted the money to my retirement fund, I felt robbed.
It was only years later that I realized that he had done me a huge favor.
So when I say “people are stupid,” it’s from personal knowledge.
The most informative characteristic of that NY Times article is found in the many comments from Times readers. For the most part they don’t agree with either Krasting or the focus of the article. However, they do evidence the very limited understanding of the Social Security system that prevails amongst the general public, and those are people that can actually read. Everything from raise the cap to there won’t be any money left when its time to collect. But few lamenting the lost income and understanding, at least, that the loss is very small for most workers due to the low levels of income that have become the norm in good ol’ USA.
what Krasting is arguing… though he doesn’t know it
is that “because the banks have torpedoed the economy and led to lost wages and therefore lower Social Security payroll tax collection and a more rapid paydown of the Trust Fund… the only answer is
to destroy Social Security by turning it into means-tested welfare.
Krasting does not ask WHY the Trust Fund is running out “early”: he just assumes it is due to some fatal flaw in Social Security itself… just as the bankers have been claiming for the past seventy five years.
Nor does he ask IF we can “save” Social Security by something less drastic than destroying it. No we can’t raise the “tax” even eighty cents per week. We must turn it into means tested welfare… something the bankers have been trying to do for 75 years.
Because they know how to kill welfare.
Now, I don’t think Krasting knows this. He has never shown that he thinks at all. But he is perfectly able to repeat the stories the bankers tell to the foolish.
Including, sadly, Our President.
On the other hand, there are those who think the answer is to just take the money away from “the rich.” There might be a certain justice in this.. in some cases… but it is impractical. The rich won’t let it happen. And if it did it would lead to one of two things, neither of which is good for us. Either “the rich” would “own” Social Security, and they would proceed to cut it and means test it.. and the workers could no longer say “but we paid for it ourselves.” Or our radical friends would succeed. And then we would live in a country governed by naked force… no doubt laundered through a “democratic” process no more honest than the one we have today.
This is not going to happen… as I said, the rich won’t let it… but just calling for it gives the rich their best argument for killing all the measures that would help the poor… they point at the end game of the progressives. And while it is NOT true that raising taxes or regulating the banks will hurt the economy, it IS true that raising taxes to confiscatory levels, and contolling the means of production 100% would lead to outcomes we have seen in other parts of the world.
Me, I think the best choice, is just to pay the small amount it takes to keep SS working the way it always have, and then work on reasonable and progressive ways to wrest our democracy away from the banks who know own it. But that can’t be done by shouting stupid slogans at them.
Okay guys – I hear you. Let’s see what the next report from the SSTF says, and what the reaction will be to that.
On the NW plan. Do a spread sheet for the incremental revenue it creates (over SS intermediate case). Show the years and the amounts.
Then overlay it on the projected cash fall at SS. You will see that your plan does little for the next 15 years.
See this article for SS projected cash flows (not me). Your bucket does not fill this bucket.
Anyway, there will be no new taxes for SS. You can keep pretending there will be, but there won’t. I keep telling ya, fold those cards.
http://news.investors.com/020613-643479-social-security-kitty-is-drying-up-faster-cbo-forecast-finds.aspx
Krasting
I did the spread sheet. Unlike some, I am very careful with numbers.
Adding one tenth of one percent (each) to the payroll tax whenever the Trustees Report “short term actuarial insolvency” (that is a Trust Fund less than one full year’s benefits in reserve is predicted ten years on the future)… prevents the Trust Fund from EVER falling below one full year’s benefits in reserve.
This is short term, middle term, and long term..
best of all, by about 2050 the rate of increase in the payroll tax will have fallen to less than one tenth of one percent… every ten years. That’s about 8 cents per week per year in today’s terms.
Krasting, you simply don’t know what you are talking about. Worse, you don’t seem to be able to understand what -I- am talking about.
I never questioned your predictions. I just said, first, they don’t matter, and second, that your “remedy” was disastrous.
http://4.bp.blogspot.com/_fjW71B3WLTQ/ShbQb3TELBI/AAAAAAAAAOs/yYDaLqTsYzA/s1600-h/OASDtrig2009-1.jpg
2009 Spreadsheet. A little difficult to interpret but the last column represents TF Ratio (reserve) where the target is a sustainable 100 and NW never drops below 128 in the extended version. Note two that TF balances only drop by $124 over eight years and then start growing again, and that out of some $4.9 trillion. Which is why I say the TF never needs to be paid back. IF WE FIX IT ON THE BACK OF WORKERS. The NW Plan is a multi trillion gift to the 1%, if they only knew it. Instead they want to kill SS at the cost of having to pay off the TF balance within the next two decades. Madness.
I have the 2012 version but need to get it into blog postable form. But as Dale says it does the same thing, keeps the TF from every going out of actuarial balance.
“Anyway, there will be no new taxes for SS.”
With the current negotiating team, Bruce K is probably right, but he is far too pessimistic. 1983 included both tax increases and benefit cuts. Continuing to insist that the NW plan is the best course is the way to make sure that tax increases are considered this time as well.
In the end, if the critique boils down to “it is not politically feasible”, then disagreeing is the correct response to the critique.
Obama can increase the FICA without increasing deductions from paychecks by offsetting the FICA hike with an income tax credit, on the same paycheck, can he not? There would be no addition to total federal taxes and Social Security benefits are preserved. Of course, the income tax code becomes more progressive–lower effective income tax rates on wages (up to the Social Security earnings cap).
Arne
NASI did a poll that showed that the people are willing to pay for the needed increase.
The only people unwilling to do this are the long term enemies of Social Security. And those who call themselves the “defenders” of Social Security, who will settle for nothing less than forcing “the rich” to pay for it.
see R.J.Eskow… who will link to NASI:
http://www.huffingtonpost.com/rj-eskow/as-public-makes-hard-choi_b_2619776.html
PJR
not without approval of Congress. In any case I don’t like formulating FICA as a “tax.” It’s an insurance premium under the Federal Insurance Contribution Act.
I am not too worried by the “tax increase” that comes from restoring the insurance contribution to it’s “present” level.
Tax policy is the wrong way to fight this recession. Better bank regulation was what was required. And higher taxes on those who have the money, immediately spent by the government to create jobs, would work where tax cuts have not.
The payroll tax is not a tax, nor is it regressive. Poor people get MUCH more for their “tax” than rich people. But even rich people get their money back plus interest.
Just amazing how an anti poverty program, the most successful in American history, turns out to be not welfare, and not based on “progressive taxation.”
Coberly I don’t disagree with you but am suggesting that the needed FICA raise (to preserve Social Security benefits) in conjunction with an offsetting income tax cut might be acceptable to Obama, liberals in Congress, and maybe even Grover Nordquist (it’s revenue neutral for their unified budget).
PJR
you could be right.
how do you get to propose it to them?
Wish I knew. I sent a note to my Senator, but that’s not exactly like buying a McConnell or Reid. Here, I was just prodding SS-smart people to think of ways to sell the basic notion of the NW Plan (beyond saying it’s the right thing to do and not really a tax increase on wages although it might look like one).
Question: “how do you get to propose it to them?”
Answer: Convince people at AEI or Heritage or some such organizations that the NW Plan is a brilliantly disguised covert mechanism that will eventually destroy Social Security. It has to be sold as something that it is the opposite of. Have you guys forgotten the nature of our political class?
Jack how about some jiu-jitsu?
The NW Plan is the hugest debt forgiveness plan for billionaires ever devised.
That $2.7 trillion in Trust Fund assets/debt? Want a legal way to NEVER HAVE TO PAY IT BACK? Want to pay a 40% or so discount on ITS ACCRUED INTEREST?
How about a plan that simply wipes $20.5 trillion in “Unfunded OASDI Obligations” right off any balance sheet that will bear on you?
For Rightists playing our Home Game the net effect of the NW Plan is close to $23 trillion in free money, much of it for the billionaires. What is the catch?
Well workers being able to maintain a dignified, labor funded lifestyle in retirement, one that owes nothing to capital and everything to an aliquot share of the productivity they helped produce over their lifetimes. In other words retirees as makers and not worthless mooching takers. And that cannot be borne.
In a rational world Dale and I would have automatic entries in the Jack Kemp Hall of Fame. I mean screw loopholes that save rich people billions, OUR plan saves the top 1% TRILLIONS. OVER THE INFINITE FUTURE AND BEYOND! And all it takes for the Richie Rich’s and Scrooge McDucks to pick up all that change is for them to give up their long-standing desire to stick it right to the working poor, and BTW piss on FDR’s grave.
Too much to ask I guess. When FDR claimed “I welcome their hatred” in regards to the bankers he did a longer lasting job than he ever imagined. Because it takes a lot of hate for a banker to turn down this kind of free money.
I hope I don’t need to say that ‘Free Money for Billionaires’ was no part of the intent of the NW Plan which instead was focused on the best way to deliver on the current law Scheduled Benefit for workers.
It just turns out that the math that underlies a combination of dignified worker retirement and sustainable solvency results in a Trust Fund that in practical terms never has to be redeemed by the people who borrowed the money. Instead it simply gets converted to an interest only loan in perpetuity, and one where actual cash interest paid is at a steep discount to the rate on the face of the bond or note.
The world is a funny place sometimes. “Save trillions by saving the New Deal” Not the slogan the Bankstas ever thought to live by to say the least.
In that case Bruce there’s the hook. Skip the “Save Social Security” banners and instead we have:
“Congress Considers a Plan to Ameliorate Trust Fund Debt”, NY Times, July 13, 2013 Ed. Today Eric Cantor introduced a plan in the House that many regard as a unique revision to the Social Security system whereby the outstanding debt represented by the Trust Fund Special Treasury notes will never require redemption thereby alleviating a significant debt load from the general budget. Cantor was confident that the full House including Democrats will get behind such a plan, referred to as the North West Plan because it emphasizes the independence of workers’ contributions to their eventual retirement benefits from any form of welfare funding, a unique characteristic of the hardscrapple life of loggers in the northwestern states. The plan is a tribute to the intention to assure that workers who expect a retirement benefit through the Social Security system make the necessary payroll contributions to that
system. Cantor was quoted as saying, “We have to recognize that our economy cannot afford to pay for the retirement of workers as an entitlement and that benefit needs to be shifted to a return on workers’ investment in their own future.” That concept seems to assure that Democrats and Republicans alike can get behind such a plan, a total reversal of the concept of entitlements based solely on living long enough to reach retirement age.
It has to be a first class bi-partisan idea if the NY Times says it is.
Jack
the Carl Rove of the Northwest Plan!
i just wanted to say that Krastings bottom line:
“You’ll never get a tax increase… not even eighty cents per week… so you might as well quit pointing out that that’s all it would take to fund Social Security forever..”
Amounts to calling on the guys at the Alamo: “Hey, you guys can’t win, so you might as well surrender and help us rape the women and children.”
It is an appeal to dishonor.
Dale,
In a real sense Krasting has a point and it is not too different from my own. Karl Rove understood that you can’t sell a pig as a cow, but you can sell an idea as whatever you describe that idea to be. You may or may not be able to sell a tax increase to the Congress or their constituents, but you can certainly sell the idea that the NW plan is an improved revision to an on going and highly successful and enormously popular retirement system. The need is to focus on the need for the system itself given the ever disappearing retirement capacity of the average worker and the individualism built into the Social Security system as it has always been. The NW plan only re-emphasizes that individual character of the system. Workers contributing to their own retirement through a system that is portable from one employer to the next and always out of the control of any employer. And not subject to market gyrations and manipulations than any private plan, IRA or 401k plan. With an expense ratio below the average and including a disability insurance feature in addition to dependent support in the event of an early death of the contributor.
You don’t fix what isn’t broken, but you can continuously improve upon any product or idea to the benefit of both. And its a lot easier to sell improvements rather than repairs as they are usually so much less expensive.
Jack
if you’ll tell that to a Congressman, I’ll hold him down and make him listen.
I think the only hope is if a hundred people each make appointments to talk to their congressmen (that’s 100 times 435 people) and tell them what you said, and that they are willing to pay for it.. the Congress might begin to hear.
The Constitution gives us the right to petition for redress of grievances, but it does not require anyone to pay attention.