2013 Social Security Report
Well I am back at Angry Bear and just getting my feet wet with WordPress, so this first post won’t be ambitious.
The 2013 Annual Report of the Trustees of Social Security was released today Friday the 31st of May. The short take-aways are ‘not much change’ and ‘no news is good news’: date of Trust Fund depletion remaining at 2033 and the 75 year actuarial gap going up from 2.66 to 2.72 which is precisely the structural amount due to the change in actuarial period. (On the other hand the numbers INSIDE that number would repay examination, an exercise for the diligent student.)
For now I am just putting this up for comment, consider this a Social Security open thread.
Well, as you know
the Trust Fund depletion date is meaningless. The Trust Fund in its present form is a “bridge” to pay for the boomer retirement… whether the folks who raised the tax in 1983 “intended” that or not. The “normal” Trust Fund is only a reserve equal to “one full year of projected benefits” and even that is not a magic number. It could be less without necessarily become a problem. One full year of benefits would last something like ten years to cover revenue losses from an extra 10% unemployment for ten years.
Social Security does not depend on its Trust Fund in any material way. It is designed to be pay as you go. And that means that any lengthy period of lower taxes needed to pay benefits should be fixed by either lowering benefits or raising taxes. Raising taxes is by far the least harmful solution. The raise in taxes would unlikely ever be more than about one tenth of one percent per year, especially if the shortage of funds was forseen in the “short term actuarial balance.”
Point here is that there is NO problem and there never will be a problem if the program is managed by sane people.
Which it is not.
Current projections suggest that over the rest of this century the tax might need to be raised a total of four percent … 2% for the worker, 2% for his boss. This raise can be approached by raising the tax one tenth of one percent at a time. That is eighty cents per week per year.
The 75 year “actuarial gap” going up by 6 hundredths of one percent is essentially meaningless. If you are not going to pay your bills, your debt is going to keep going up as long as your expenses continue. But once we start raising the tax that one tenth of one percent per year the debt stops growing, and the projected “deficit” starts coming down.
The 2.72% increase in the tax (combined) would pay the “actuarial shortfall) for the next 75 years, but that is ONLY for those years. The tax increase that is needed to pay for SS AFTER those years would have to reach about 3.8% over the next 75 years. Half of this would be seen by the worker. Since that workers pay will increase over 100% during that time, he is not going to be “burdened” by devoting an extra 2% of his pay to his longer retirement. He will have twice as much money after paying the tax as he has today. Moreover he will get his “tax” back, with interest, in the form of benefits, also twice as high as today’s, for a longer life expectancy.
The Trustees don’t make this obvious. And the press, and sorry to say the “liberals” dutifully report the Report as if it was looming doom, or “analyze” the meaningless numbers in meaningless ways.
The only thing that counts is “will the workers want to retire some day?” is there another way they can protect their savings…. remember SS is their own money. it is NOT government money, or taxes from the rich..”
That said, the “facts” show that the projected costs are not looming gloom. they are not a “burden”, much less a “crushing burden on the young.” The costs won’t even be noticed. But arriving at the age of 60 or so with no way to pay for retirement… that would be a crushing burden.
Do try to think clearly. It won’t be easy. Not because the subject is hard, but because people have their heads filled with lies and meaningless noise, and they always try to start thinking from there. It can’t be done.
The smartest move is to begin 0.1 percent annual increases in FICA now and stop them when the Trustees determine that it’s no longer needed. We can “predict” the number of annual increases, but the economy and economic policies can add or subtract years. Perhaps the part that I especially like: if workers want to continue sending imbeciles to Washington, the annual increases will occur for more years, and that should be their choice to make in a democracy.
i agree with you. one thing to keep in mind is that if the predictions turn out to be over-pessimistic, you can stop increasing the tax rate, or decrease it, or decide you’d rather have the higher benefit anyway.
one thing i DON’T recommend is using it to increase the size of the Trust Fund, or what is the same thing: make it last longer… which appears to be the goal of everyone who is cutting off their head because it is going to “run out.”
what would be especially nice about increasing the tax rate now is that it should shut up the SocialSecurityIsGoingBroke hysteria, AND remind the liberals that it is easier to fix the economy or increase benefits when no one is shouting about “Huge Deficits” “Terrible Burden on the Young” and “Going Broke” not to mention “It’s the math!”… this said by people who don’t even know what math is, let along what “the” math is.
i am not sure what Bruce meant by “the numbers inside that number”
but as a diligent student i suggest that what you need to know is that the
Trustees are saying “an IMMEDIATE increase in the tax by 2.72% (combined… that’s 1.36% that would be seen by the worker) would pay for SS for the next 75 years, then another raise would be needed.”
That’s a clumsy way to do it. An immediate increase of one tenth of one percent (for each the worker and the employer) repeated essentially 20 times over the next 75 years would not only pay for SS for the next 75 years, but the “another raise” would already have been taken care of and SS would be fully funded for as far as the eye can see out into the infinite horizon. That would … should… shut up the “can’t keep kicking the can down the road” folks. Those who think they can “fix” SS forever with one all-wise fix today. Of course what they mean by “fix” is “kill.”
And Medicare??? Medicare added another couple of years solvency to 2026. I can not imagined what caused it to move out 2 more years. Think it could be the PPACA?
i am not sure what Bruce meant by “the numbers inside that number”
Well Bruce isn’t sure either. But I refer to Table II.D2
Reasons for Change in the 75-Year Actuarial Balance,
Based on Intermediate Assumptions
In it we see six categories of ‘Changes’ which together net out to -0.05% of payroll, close enough to the -0.06% due to Change in Actuarial Period to ascribe all the net change to that factor. But the other five numbers involved are -.15, -.17, -.03, +.01, and +.35. And what is concerning is that the three negative numbers are due to changes in ‘Legislation/Regulation’ ‘Economic Data and Assumptions’ and ‘Demographic Data and Assumptions’ while the big positive number is due to ‘Methods and programmatic data’.
While everything is probably on the up and up a significantly paranoid enough thinker might, without actually probing the source of ‘the numbers within the number’, i.e. the components of that innocuous net change, that the actual legislative action and economic and demographic data would absent anything else have added .36 to actuarial imbalance only to see most of that wiped out due to changes in methodology. Which latter by nature have more human agency.
I can tell you this much: if the magnitudes of those changes had been reversed, that is economic numbers coming in better than expected and methodological changes made to counteract it I would be digging into that data and methodology pretty hard. Because we have three component numbers, two negative and one positive that are between 3 and 7 times as large as the resulting net. And there is no logical reason to simply claim the cause of the net is fully the result of the nearest component to it. Not everything necessarily coming out in the wash here. If we are honest in probing the internals of the data tables that is.
I value your scholarship, and I hope you keep after them on the details.
But for us ordinary folks a difference of a tenth of a percent, more or less, in a guess about the economy over a 75 year period is not something we should take seriously. If for no other reason than any sane policy of actually “pay as you go” will absorb those differences without anyone noticing.
please note that i am using “pay as you go” slightly differently here than its ordinary meaning.. the ordinary meaning has us paying for social security benefits out of current taxes… that is without recourse to “the financial markets” or any sort of borrowing and lending at all. i am using pay as you go to suggest we actually do that… and raise or lower taxes as needed…. at least until we actually reach a situation where the raises might be significant, or the failure to lower might lead to too large a Trust Fund.
This is so simple and obvious that it staggers the imagination that Peterson and company have managed to portray SS as a “looming deficit”.. and everyone… everyone… thinks of it that way. Including those on the left who think the only solution to this looming deficit is to force the rich to pay for it. As if they would.
Pardon me while i say again, the likely cost is eighty cents per week per year while wages are rising more than eight dollars per week per year… to pay for a retirement that may last twenty years or more.
eighty cents per week. why is that so hard to understand?
Longer term followers of the Social Security debate on Angry Bear will recall numerous polemics about the contrast between the ‘Summary’ and the ‘Full Report’ with the former being in some people’s view more politicized and certainly flattened out when thinking about alternatives and probabilities. That is the Summary tends to just assume Intermediate Cost while leaving such things as High Cost, Low Cost and Stochastics to the full Report.
Well when viewing citations and URLs you might note that any reference to Section or Table or Figure I or II is a reference to the summary while III to VI are to the full Report. In this case in order to pursue the sources of the numbers in Table II.D2 cited in my comment you actually have to seek out the narrative and fuller Tables of IV.B6.
Hence “numbers within numbers”, in this case “sections mirroring and explicating earlier sections”. In many categories of academic and professional publications it is safe to skip the footnotes. But in the case of the Social Security Reports they serve to direct you to the meaty parts of the Report and you skip them at your peril.
i have read the full report. and i agree that “someone has to do it.”
but most of the peril i see is getting lost on a meaningless side trip.
Certainly the “Summary” is calculated to be misleading. the full report is merely verbally misleading. the numbers are perfectly clear.
i wasn’t finding fault with you. i was just trying to point out to others who might have failed to realize that a tenth of a percent more or less guessed at for the remote future is not a statistic they need to take seriously.
on the other hand, i was hoping you would tell us what those “Methods and programmatic data” are and why they matter.
Please keep using that sentence about 80 cents per week fixing Social Security for the next 75 years. I never heard that until I read it here a couple years ago, and I’ve never read it anywhere else. It could be a transformative sentence, like the 99% was when Occupy first used it.
I read lots of economics blogs, but they all talk percents and actuarial projections and payroll tax. If you make under $40,000 a year, especially if you are paid hourly on a random schedule, the whole thing is hard to grasp. I don’t have a calculator handy, but SS is about $35 on a $500 paycheck. Telling me it’s going up 80 cents seems easy to handle, hell, I’ll sign up for $1.60 each week if that’s what it would take to stop talking about chained CPI.
Please, write columns for Daily Kos and Huffington Post and get this info out to everyone.
Mcarson, I moderate the Daily Kos Social Security Defenders Group, you might consider following or joining that. I have posted there on the Northwest Plan which is built over and around Dale’s formulation of “80 cents a week” though not so much lately. There is quite a bit of stuff related to it in the Angry Bear archives accessible by searching ‘Northwest Plan’ and you can find references around the blogsosphere by the usual Google thingies.
As to HuffPo. Well I am in contact with a number of regular columnists for it but the consensus among even the good guys seems to be fixed around Cap Increases rather than FICA tweaks. Although they are aware of the NW Plan and its Virginia Reno/NASI equivalent few seem interested in pushing it.
For the record the Northwest Plan is primarily Dale’s work product with input (and authorship credit) from me and Arne Larson, all of whom lived in the Pacific Northwest when the plan was hammered out in 2009.
Dale any one year change that moves 75 year actuarial gap by .35% or about an eighth of its total is clearly important, for one thing it subtracts about four future annual adjustments in FICA from the schedule either on the front end or the back. Similarly two changes in economic and demographic data over that same one year period total -.35 is a big deal also just on the face of it when we are talking a net number that moves at a fraction of that in the typical Report year. And those two important facts don’t vanish simply because of an accidental(?) third fact that they offset each other.
That is if your car/data line is swerving all over the road it is not much of a defense to the cop to explain that you never actually crashed and on average were in the middle of your own traffic lane so you should just be free to go.
As to the ‘why’ of the specific 0.35% due to programmatic assumptions and data well I will have to dig in some, but things are hectic around chez Webb this week and this morning so I can’t promise a time. Which is why i pointed to the relevant section for others to get a head start.
Bruce, the people who are fixated on raising the earnings cap should be natural allies of people who want to raise the FICA rate and there’s no reason for not doing a little of both, gradually and annually. The concept for both is to raise revenue from the workers themselves to avert a 25 percent cut in their future benefits. (Their conservative opponents want to cut benefits to avert a cut in benefits.)
Also arguing for either or both approaches: assuming the benefit formula doesn’t change, raising FICA contributions also would result in a future increase in benefits for those who pay the higher FICA. This is “strengthening” Social Security beyond “saving” it. Raising the rate translates into higher future benefits for ALL workers; raising the cap translates into higher future benefits for people earning above the earnings cap in some of their working years. The benefit increases may not be huge, but the point for both proposals is that future retirees will do better than averting a cut in benefits.
One other observation about both proposals. Both should especially appeal to young workers who see themselves advancing in life from the crappy jobs and pay that this recession has given them. (Also middle-aged workers who hope to replace their high-earning baby-boomer bosses who’ll be retiring.) Anybody who goes up the ladder in income can’t possibly notice gradual FICA hikes–rate or cap–but will appreciate the preserved and strengthened retirement benefits.
0.35% is not a big deal, even if it is “one eighth” of the total problem which is not a big deal.
especially if you are talking about guesses about how the economy will behave over the next 75 years.
Social Security… that is, your basic retirement… will cost whatever it costs. It doesn’t look from here like that will be so much more than it costs today for anyone to really notice it. Except of course for the professional liars who will try to make it sound like a “looming” catastrophe that will crush “the young.” You know better.
Even if the costs are somewhat higher, or incomes are somewhat lower, people will still need to have saved enough for a basic retirement… or work until they die… or just die in the street. You might think you can do it on your own, but “the markets” have a way of letting people down at the worst possible time, and just saving it in a safe place will lose most of it to inflation. SS is the first, and only, way ordinary workers have to safe “at least enough” to be able to retire when they need to “if all else fails.” We can easily afford to save that “enough” if Social Security provides the protections against market loss and inflation. Since SS also allows the workers to insure each other against most of the personal losses… including a lifetime of low wages, it is hard for me to see how another percent or two changes the equation from “the best deal workers have ever had” to a proposition so doubtful we should cut it and avoid the “tax,” or risk losing it entirely by “demanding” that “the rich” pay for it.
SS has lasted this long exactly because “the rich” do not pay for it.
I see no reason to confuse the issue by acting as though a dubious guess about the remote future of a quantity that is too small to notice, albeit a significant fraction of a “total” that is also too small to notice.
You get into the land where a 2% increase in the payroll tax (over 75 years) becomes a “33% tax increase.” (because 2% is 33% of a 6% tax.
our grandparents tried to put away 10% of their smaller earnings in order to have enough to retire on. They usually didn’t succeed… inflation, market losses, and just not being able to save enough, left them dirt poor by the time they were too old to work. Or too old for anyone to hire them. I think we can easily afford to put away 6 to 9 percent of our much higher earnings so we can guarantee that we can retire at a reasonable age with at least enough for groceries and a roof.
that leaves most of us with plenty of money to try our luck on the markets. and best thing is, with SS to back us up, win or lose we still eat.
i am inclined to agree with you. but it is necessary to be very careful how you put it. Any threat to raise the cap is easily seen by those above the cap as a huge tax increase for which they get no benefit.
Since we can pay for our own future benefits with an extra eighty cents per week each year, I don’t think it is worth the risk to incur the wrath of those rich (most of them i think) who are currently not enemies of Social Security.
But yes, if you could raise the cap in a way that guaranteed a bigger retirement check for those at the higher end of the “covered earnings” they might think it would be worth the extra cost to lock in a higher standard of living in retirement. Again, I would wait to do this until the present assault on SS has been beaten back entirely. The way to beat it back entirely is to get everyone to understand that the workers are willing to pay for it themselves and are not asking for welfare.
I wish i knew how to reach the huffpo or daily kos audience. I believe the owners of those sites are committed to a “raise the cap” rhetoric.
This is what makes me so grouchy. “Raise the cap” as rhetoric simply motivates the opposition. In fact the whole Lie about Social Security is based on the idea that “we” are going to tax “them” to pay for it. SS has never been paid for by the rich. And the argument for raising the cap is specious.
The “raise the cap” people like to say that the SS tax was set in order to “capture” (tax from) 90% of earned income. And now, because of unequal (unfair) increases of income going mostly to those already earning the higher incomes, SS only captures about 83% of earned income.
This sounds like an argument for justice, but it is really an argument based on complete misunderstanding of what SS is.
SS is insurance. You pay a premium for insurance according to the size of the expected payout (and the risk), NOT according to how much money you make.
The fact is that the rich earning a larger share of the nation’s wealth has no effect on SS at all… except of course by the torturous logic that if you could tax their higher earnings, then you wouldn’t have to tax the ordinary workers’ lower earnings. Fine, but that’s welfare, and that is not how SS was designed… at Roosevelt’s insistence, and he knew something about politics in America.
The “real” problem with the unequal rise in wages is that workers wages are not rising fast enough to produce the “interest” that comes automatically from pay as you go with wage indexing.. an interest that allows a higher benefit than the worker “pays for.”
The solution is to find a way to increase workers wages, not to tax the earnings of those already earning more, who are already paying more tax-for-the-benefit than lower wage workers.
This is not because I am so fond of the rich. I think they SHOULD pay more taxes… more income tax… but NOT for Social Security, which has worked for 70 plus years BECAUSE it is NOT WELFARE.
Nor am I against welfare. It’s just that SS would be killed by turning it into welfare, and we DON’T NEED TO DO IT. EIGHTY CENTS.
Of course while waiting to find a way to increase workers’ wages, an extra eighty cents per week each year is not an intolerable burden for them to keep the benefits they get from SS without putting them at risk by turning SS into a welfare program.
The short take-aways are ‘not much change’ and ‘no news is good news’:
If you look at this page from the Trustee’s report: http://www.ssa.gov/OACT/TR/2013/II_B_cyoper.html#94983
You will see that total income for OASI/DI is $840B. Of that, $225 B roughly 30%, are reimbursements from the General Fund and interest (reimbursements from the General Fund). So 30% of your income is from a source that is running $1T annual deficits. No problem, nothing to worry about, move along?
the united states of america is not going to run out of money. and it has always paid its bills. that’s part of what made it a great country.
when the time comes that the country can’t pay its bills without raising taxes, it will raise taxes.
if you knew a little more, you’d know there is plenty of money in America to pay our bills. I believe, but i am not sure, that private debt is more than government debt. somehow even the private debt gets paid or written off.
the people who want you to panic about “the debt” keep telling you fairy tales and you keep believing them.
but at least you noted, this time, that the money is owed TO Social Security, not “borrowed BY.” SS is in fine shape.
In fact, even if the money was never paid back to Social Security, Social Security would be in fine shape. SS could pay all of its “promises” simply by raising the payroll tax sooner than will otherwise be necessary. And the people paying the increased tax would hardly notice it… no more than they noticed the end of the payroll tax “holiday.” AND they would get the money they pay back when they retire.
If you knew a little more you would not over-react to “facts” which are largely unimportant.
It will be good to read your posts again. Welcome back . . .
Sammy those reimbursements from the General Fund are the result of the now sunsetted Payroll Tax Holiday (which was opposed and for good reason by AB SS folk and much of the DC folk). They will no be repeated because they are being replaced dollar for dollar by a resumption of 2% deduction from worker paychecks in the form of restored 12.4% combined FICA. So looking forward they have zero to do with solvency or sustainability and less than zero to do with the Northwest Plan which would have instead of a 2.00% temporary cut instead instituted a phased in set of 0.1% increases.
So that one is not on us.
As for interest on the Trust Funds well tell it to the Chinese Central Bank. If you don’t want to ‘reimburse’ creditors by paying legally accrued interest stop borrowing the money. Not that interest payments are in any sense ‘reimbursements’ to start with.
Yes it was a huge mistake to cut revenues for a program with a long term imbalance of over 2.5% of payroll by an additional 2%. But none of that was the fault of Social Security as structured before the Neo-Libs decided to get clever.
Plus Sammy only $55 billion of that $109 billion in interest was actually transfered in cash form. So reduce your percentage (already overstated) by that. And then consider that Trust Fund interest is not counted as an outlay and so not a part of that $1 tn to start with.
I understand that knowing more about a subject before posting an opinion on it is somewhere between tiring and a grave restriction on Free Speech rights on the Intertoobz. Still I recommend it.
“Plus Sammy only $55 billion of that $109 billion in interest was actually transfered in cash form. So reduce your percentage (already overstated) by that. And then consider that Trust Fund interest is not counted as an outlay and so not a part of that $1 tn to start with.”
So the $1T deficit is actually $1.05 T. This changes everything.
well, let me try to add to sammy’s confusion:
about half of the 30% cites from the reimbursement to SS of the tax cut.
Sammy fails to realize that this money is replacing money not collected from the payroll tax. With the payroll tax restored, treasury will not need to reimburse SS. so it’s not a question of SS relying on the government which has a 1T deficit for continued funding. In fact, it is an example of that government paying it’s bills. In this case an unnecessary debt it brought upon itself with the stupid tax holiday… which itself had only one reason: to allow the Liars to say “see, SS does contribute to the deficit.” Only it wasn’t SS that contributed to the deficit: it was the tax holiday that contributed to the deficit.
The other half of the 30% Sammy cites is “interest” the government pays on the money it borrowed from Social Security. Paying interest on money you borrow is standard business practice. Only the Sammy’s of the world believe in stiffing the people they borrow money from.
Bruce points out that only part of this interest payment results in actual cash being transferred from Treasury. The other part just goes on the books and will be saved until it is needed.
Since SS requires itself to keep a reserve of one years benefits, it is entirely possible this “unpaid” interest will never have to be actually paid. it just remains on the books against the day it MIGHT be needed. And as long as the economy grows, and the Trust Fund does not… as would happen under the northwest plan with the tax rate being held to just the amount needed to pay current benefits plus maintain the one years reserve… the money currently in the Trust Fund might never actually have to be turned into actual cash (more or less.)
The fact that SOME of it was turned into actual cash this year is just more evidence that the Trust Fund is “real” and the government is still paying its bills.
Frankly, I can’t remember if the “deficit” includes the “interest” not actually paid out in cash to SS. I think it does not, though I think it should.
In any case I am not sure Sammy’s last comment made any sense at all. He might wish to explain it in more detail to us.
the “more or less” tacked on to one of my paragraphs above was meant to indicate that what i said was more or less accurate. a more careful accounting, and explanation, than i have patience for at the moment would show some discrepancies, but they are minor and not material.
Is Social Security running out of money?
The Social Security trust fund ended 2012 with $2.6 trillion in assets. Under current law, the trustees anticipate this account to be drawn down gradually and become negative after 2035, an event that is sometimes referred to as “running out of money.” But the $2.6 T in current assets consist of nothing more than a big I.O.U. from the U.S. Treasury to the Social Security trust fund. Where are the assets that the U.S. Treasury is holding that would enable it to make these payments? They don’t exist. Taxes will have to be raised, other programs cut, or the Treasury will have to borrow more from the public in order to deliver the funds that Social Security is assuming it’s going to be receiving from the Treasury between now and 2035.
my comment: awaiting moderation:
so is the same true for treasury bonds owned by banks they count as assets? those assets held by banks dont exist because to be redeemed the government will have to raise taxes, cut programs or borrow more?
are you sure?
They will not have to borrow MORE. They will borrow AGAIN. It is like paying off one credit card with another. Total debt does not go up. It just changes who the money is owed to. (Sorry for the poor sentence structure.)
don’t know where jim hamilton came from, but the “assets” of the united states of america are huge… unlimited in any practical sense. repaying the Trust Fund will ultimately come from taxes. which is where ALL the money comes from that the united states uses to pay its bills, or debts.
it scares me that people are so ignorant they don’t understand this. it seems that all you have to do with people is tell them a nonsense story and they will repeat it most solemnly and think they are being very wise.
please note (mr hamilton?) that the united states borrowed the damn money. it has to pay it back. talking like hamilton assumes that the united states of america doesn’t have to pay back the money it borrows if the conservatives don’t like the folks the money was borrowed from.
note also… for some reason this is very hard for some people to understand: paying back the trust fund is not “paying for Social Security,” it is paying for the stuff the united states bought with the money it borrowed from social security.
coberly, my read of professor hamilton is that he was on the wrong side of the Rogoff-Rinehart debate, and he’s trying to recover his stature by attempting to make Treasury issue into a debt that has to be repaid..
it IS a debt that has to be repaid. but “nothing more than an iou” and “where are the assets” sounds like a complete ignoramus talking.
professor or not.