CBO Budget and Economic Outlook: 2015 to 2025
CBO Budget and Economic Outlook: 2015 to 2025
Document link for Robert’s post. Lots of numbers here, including a new
Jan 2015 Baseline for Social Security
Just started poking at the numbers but it seems that CBO has revised projected revenue for SocSec down going forward. Not by a lot but perhaps enough to make Brother Krasting happy. But in the interest of ‘Numbers for All!!!’ and before I dive back in here are the links for Bears to start their own foraging.
Update: Well I found the smoking gun that drives those revenue forecasts. It is on page 114 in App A.
A change in CBO’s forecast of economic growth lowered
revenue projections for the 2017–2024 period. CBO has
slightly reduced its projection for the pace of economic
growth over the 2016–2019 period: Real (inflationadjusted)
GDP is now projected to be about 1.1 percent
lower, on average, over the 2017–2024 period than CBO
anticipated in August, and nominal GDP—the main
source of taxable income—is projected to be lower by
1.2 percent over the same period. (The projection for
inflation as measured by the price indexes for GDP is
Consequently, CBO also has lowered its projections for
wages and salaries—the most highly taxed type of income
specified in the economic forecast—by an average of
1.2 percent over the 2017–2024 period. That change
in the forecast has led CBO to make a downward adjustment—of
slightly more than $300 billion (or 1.1 percent)—in
its projections of revenue from individual
income and payroll taxes for that period.
I will leave it to smarter Bears to see if these drops in GDP and wages make sense.
CBO’s top line explanation for that GDP drop (p. 4): a reduction in the estimate for potential output. Reasonable? Or Smoking Gun? A pretty slick way to remove $400 billion from the ledger and so undercut all that good Obamacare news.
“Changes From CBO’s Previous Economic Projections
Last August, CBO projected real GDP growth averaging
2.7 percent per year for 2014 through 2018; CBO now
anticipates that real GDP growth will average 2.5 percent
annually over that period. The revision mainly reflects a
reduction in CBO’s estimate of potential output and
therefore of the current amount of slack in the economy.
On the basis of the current projection of potential output,
CBO now forecasts that real GDP in 2024 will be
roughly 1 percent lower than the level estimated in
August. In addition, the sharper-than-anticipated drop in
the unemployment rate in the second half of last year
caused CBO to lower its projection of that rate for the
next few years.”
Table 1-1 Deficits Projected in CBO’s Baseline (p. 9)
has some interesting numbers for Primary Deficit, which is to say Deficit less Net Interest. Per CBO, and even with the GDP slowdown and so revenue decreases mentioned in my previous comment, the Primary Defict declines to under 1% of GDP, and except for a one year bump in 2022, stays there through the projection period and produces a 2015-2025 number of -0.9%.
What would be interesting to me is some calculation of how much of that projected Net Interest number actually is being paid to the Fed on their holdings of the long bond. Which in many of these years is around 70% of the total issue.
Call me paranoid but someone seems to be going to some lengths to keep that Primary Deficit from going to zero. Unless of course that 1% in reduction of GDP by the end of the ten year projection makes sense in which case it is just arithmetic.
And this from page 18
“Net interest. Under CBO’s baseline assumptions, net
interest payments increase from $227 billion, or 1.3 percent
of GDP, in 2015 to $827 billion, or 3.0 percent of
GDP, in 2025—the highest ratio since 1996. Two factors
drive that sharp increase—rising interest rates and growing
debt. The interest rate paid on 3-month Treasury bills
will rise from 0.1 percent in 2015 to 3.4 percent in 2018
and subsequent years, and the rate on 10-year Treasury
notes will increase from 2.6 percent in 2015 to 4.6 percent
in 2020 and subsequent years. Meanwhile, debt held
by the public will increase, according to CBO’s projections,
from 74.2 percent of GDP at the end of 2015 to
78.7 percent at the end of 2025.”
Will the Short Bond really bounce of the lower bound of 0.1% up to 3.4% by 2018? The 10 Year from 2.6% to 4.6%? Got me. But if it doesn’t then those Net Interest nominals start looking a little puffed up.
you are not paranoid. someone has been jiggling the numbers to make SS look “worse.” but not so much worse that when the real numbers come in (after the fact) CBO predictions will look unreasonable.
“primary deficit” is a lying way to ignore the income from interest which is part of “income.”
and in any case, the answer to the SS “problem” remains to raise the payroll tax a tiny amount any year that the Trustees project “short term actuarial insolvency.”
nothing in the CBO numbers change the fact that the cost of people paying their own Social Security will remain reasonable to the point of their not even noticing that any increase will be unnoticeable… as opposed to the screaming about “going broke” “burden on the young”:
for those who haven’t heard: the projected cost of paying for your Social Security over the rest of the century will rise about eighty cents per week each year over about twenty years.. to pay for your own increased life expectancy, and to make up for the lower rate of growth of wages largely due to the fact that the workers of this country no longer know how to protect themselves from predatory corporate bosses.
eighty cents per week. in the worst of all worlds, it could cost a little more. but it would still be your best hope for being able to retire at all before you are ready for the knackers.
Thanks Dale. And that said I am hoping further comments will focus on the GDP and interest numbers and not have this just be another rehash of NW.
I don’t know what potential GDP should be. Some people project from GDP before the downturn, but that was the period of the housing bubble, so I don’t see how we can expect to go back to a level projected from that GDP with no source of demand to replace that due to the bubble. So I think potential GDP should be lower than that, but I don’t know what the numbers should be.
I don’t think interest rates will go up nearly as fast as projected. Right now, the 10-year note is at 1.8% and the 30-year bond at less than 2.4%. Why are people buying these if within a few years the 3-month bill will be at 3.4%? And they project the 10-year note at 2.6% for 2015 – well, we’re almost a month into 2015, and it is at 1.8%. So it doesn’t look like they can even predict the current year’s rate.
Three things jump out at me.
1) CBO now says that the Combined OASDI TF will peak out in 2016, Its maximum balance will be <$2.8T. 2016 will be the last year of surplus. In 2017 the combined TF balance will be in decline. I said this would happen in this time frame starting 5 years ago.
2) The projected increase in the Military Retirement TF is absurd. Want to "fix" SS?? Then focus on the Military. The decline in the OASDI TF is close to what the Military will grow. To me this is a dumb outcome.
3) I will go out on a limb – The CBO interest rate forecast will not be realized. If short-term % rates were to rise at the pace CBO believes, then there would be a significant recession in the US. CBO does not agree, I think they are dead wrong in this.
Webb – current US 10 year is 1.77%, not the 2.6% you indicate.
go for it. i have neither the time nor the heart to argue with you, let alone the Krastings.
but, once again, Krasting, the “facts” (guesses) you cite do not change the truth that the effect on Social Security is tiny and that people have no better way to insure they will be able to retire at a reasonable age.
Krasting on point 1)
CBO’s projections on peak OASDI will come true if and only if their economic projections are on point. Which is the question on hand.
In their April 2014 Baseline they put total 2016 Income at $919 billion with FICA making up $772. They put total 2016 Cost at $889.
In this Jan 2015 Baseline they put total 2016 Income at $936 with $793 in FICA. But put total 2016 Cost at $927.
That is they concede that total revenue will go UP by some $17 billion but manage to offset that by an INCREASE in cost of $38 billion. Thus allowing a year over year ‘deterioration’ of $21 billion. It is only this cost increase that allows them to deny an improvement in solvency based on what they admit are higher receipts from tax on wages. It isn’t enough to point out the deterioration, my question is whether the underlying numbers have been justified by CBO to start with.
After all anyone can make a number series show what they want to, you just have to vary the inputs. Something you are quite experienced with.
As another example let us take the year 2024.
Under the April 2014 baseline total income was set at $1307 billion.
Under the Jan 2015 baseline total income is set at $1294 billion
And you see similar sharp revisions down in income for each year from 2018 to 2023 offsetting the better projected results for 2016-17. The cumulative effect is rather large and is the only reason the better numbers over the short run don’t result in a better number over the 10 year window. The CBO giveth and then the CBO taketh even more away. Pointing out that “taketh away” > “giveth” doesn’t in and of itself justify your number series that does the same thing.
There remain two questions:
1) are CBO’s numbers for this Jan 2015 Baseline justified in and of themselves
2) are CBO’s changes in these numbers from the April 2014 Baseline justified
Or is there some weighing of the thumb on the scale to maintain “crisis”?
On point 2)
I have no opinion about the Military Trust Fund one way or another. It’s numbers depend mostly on policy decisions by Congress and not macro economic numbers.
On point 3)
if CBO is wrong on interest rates why are you using their 2016 peak numbers as justifying your position?
as to the 2.6% on the 10 year the number “I indicate” is the one given by CBO. Which is why the passage it is included in has quotes and is right indented and in the actual body of my comment is cited as being on page 18. If you have a problem with it take it up with CBO. And then ask yourself again why you see their 2016 number on peak TF as justification for your past calculations. Per you they are screwing up interest rates to start with.
subject to my error from not having time to read carefully:
the question remains as to whether a prediction ten years out that varies by one percent (about one eighth of one percent of income) is “significant” or a sane reason to base policy, or hysteria.
a one tenth of one percent of income is about eighty cents per week in today’s terms.
now i really must be going.
A couple more points. Although the numbers in the January 2015 Baseline give numbers for 2014 that are labeled “Actual” they are in fact based on best available information from early Dec. As is indicated by this from Box 1-1 on page 28
“In this chapter, the Congressional Budget Office’s
estimates of economic output in 2014 and economic
projections for this year and future years are based on
data available in early December 2014. Since then,
revised and newly released data indicate that the
growth of real (inflation-adjusted) gross domestic
product (GDP) was stronger during the second half
of 2014 than CBO had estimated. In addition, interest
rates on long-term Treasury securities have been
lower and oil prices have declined further since
mid-December than CBO had anticipated.
The unexpected strength in economic activity in the
second half of last year and the continued decline in
oil prices suggest that output may grow more this
year than CBO forecast. Lower interest rates, taken
alone, have the same implication; ”
As it relates to Social Security the Jan 2015 Baseline gives “Actual 2014” balance for the OAS TF at $2713. In fact a look at the MonthlyTrust Fund Report for December (BTW previously cited by Krasting a week or so ago) puts that balance at $2729. Meaning that CBO wasn’t able to predict results even 2 weeks in the future with precision yet we are expected to take revisions for 2018 to 2025 as being graven in stone.
To answer Dale’s question? Is a 1% error ten years out significant?
When that 1% is a percentage of some $27.4 trillion of projected GDP in that year (Table 1-1) I would have to answer “Why yes it is”.
I believe it was Sen. Dirksen who once said “A billion here and a billion there and pretty soon you are talking about real money”. When 1% = $274 billion I suggest it passes the Dirksen test. Especially since that is a 1 year number and not a 10 year one.
Webb – Per CBO – MRTF will be $1.4T in 2024. In that year MR benefits will be $67B. The implied TF ratio is then 20! This is silly. There is no need for a ratio this high. I would argue that too much savings is also a bad thing. A TF ratio greater than 5 is a not advantageous to the Military nor the broad economy.
I think that the MRTF could be used to back up the OASDI TF. Yes, it is legislative stuff – and probably hard to achieve. But I tell you that MRTF is part of a broader solution of how the federal government’s liabilities are looked out. In 2028 SSTF will be broke, while the MRTF will be fat? No logic in that…..
I don’t think CBO is right with their % numbers. But even if they were wrong, it would not make a huge difference to SS between now and 2017 (+/- 10B at most).
The exact month/amount that the TF will top out is not clear. But it will be sometime between 24 and 30 months from today. It will be <2.8T.
PS: The TF grew by a measly 25B in 2014, about ten days of benefits. SS had the largest cash deficit ever – $73.3B.
Webb – My numbers for 12/31/14
OASI = 2.729233 T
DI = 60.244B
Total = 2.789476T
So I too take issue with CBO. I understand that these variances trouble you, but I don’t think it changes the outcome. SS will top out between 24 and 30 months from today.
And no, I never take anyone’s thoughts about what will the future be in 10 years. The experience of 2009 and the revisions that caused are all one needs to question long-term numbers.
But from now till 2017? That is predicable within a fairly narrow range.
PS I don’t put any particular relevance to the fact that SS will soon be eating into the TF. This is no surprise. What is significant to me is that SS says this is a 2019 event. To me this implies that SSA will have to lower its outlook in the 2015 report.
We shall see.
Krasting can you give a link and more importantly a time and date where you established “my numbers”? Because if you are simply using the Monthly Trust Fund Reports they are not “your” numbers at all.
Per the Monthly Report the number for OAS was $2.729271. To accept your number we would have to believe that you had a model that was accurate down to four of those decimal places and only off by $38 million dollars. To say that is an implausible outcome is to understate the case by orders of magnitude, nobody could possibly project the wage base of covered income with that kind of precision. And even if you carried out your calculation to that number of decimal places, given the amount of inherent uncertainty in the variables that go into that calculation it would be the rare person indeed who would then report it out.
Can you show me how and where and when you actually put in the claim that would justify your using “my numbers”?
This report has drawn big headlines, but this projection of a changed furture GDP path is completely unreliable. Their past forecasting record has been pretty bad, and indeed there are some important assumptions in this one that look like they could easily fail, such as the one on interest rates.
As it is, it looks like this is a forecast that says that future growth will be lower than we previously thought because the unemployment rate has fallen more rapidly than we expected. Hilarious.
Also worth noting is that the 2014 SocSec Report projected the year end balance for OAS at $2.7255.
Which brings a couple things to mind. First most people would find a projection to even four decimal points kind of ridiculous. Nonetheless they did manage to get very close to actual $2.7293. As you pointed out in another context an error of less than $5 billion made using numbers 9-10 months in advance is not much more than rounding. Given the precision (or sheer luck) of the OACT in projecting the year end balance in OAS on what basis do you have to dismiss their projection that OAS TF balances won’t decline until 2022?
Webb – You started this with the 2015 CBO numbers. It them not me who have come up with the numbers. That CBO is not in agreement with SSA is also not my problem.
Any of the numbers one could look at (Treasury and SSA data) are subject to ongoing revisions. SSA adjusts twice – once quarterly and also annually. So no, no one can make an estimate that will be very close to that which is ultimately reported. In the future I will provide data with only 3 decimals.
Krasting you volunteered your numbers. And then, and typically, do not source them or reveal your methodology.
Moreover a few month back when CBO released ITS revised outlook for Social Security you insisted that SSA would HAVE to adapt its numbers in the upcoming 2015 Report to those of CBO. That is back then it was YOU “who started this with the —- CBO numbers”. Now after CBO came out with the more comprehensive numbers of the Budget Outlook you allow that many of their assumptions are incorrect but in your point one in your 9:13 manage to claim that they VALIDATE your previous projections:
“1) CBO now says that the Combined OASDI TF will peak out in 2016, Its maximum balance will be <$2.8T. 2016 will be the last year of surplus. In 2017 the combined TF balance will be in decline. I said this would happen in this time frame starting 5 years ago." I can understand your (failed) expectation that I wouldn't remember your comments from last month but that you seriously expect me to forget your initial 9:03 comment on THIS thread is a little much. If you want to claim that this Report validates your "5 years ago" claims you need to embrace its assumptions. Or just admit that the congruence is just some big coincidence. And SSA doesn't "adjust" numbers quarterly. Instead they "report" new numbers quarterly and then adjust the numbers in their Annual Report. Unless their is some interim reporting I am unaware of. Moreover it is hard to see how "quarterly" adjustments and "annual(ly)" adjustments would add up to "twice" anyway. You seem to be flailing here. CBO’s 2014 Long-Term Projections for Social Security: Additional Information (Dec 18, 2014) http://www.cbo.gov/publication/49795
Webb – I can’t imagine that anyone is still following this thread.
The numbers from SS are released, and a few days later there are adjustments (if any) from the prior year (Actual Wage Data) and also any changes from the Prior Quarter. The adjustments are made for both FICA and SECA. These adjustments are made and reported monthly. This is the report – just hit “Go”
I took a screen shot of the numbers I put up. We will compare them to the SSA 2015 report to see how close I came.
What US needs is a peace dividend.
There are trust funds for OPM (half in pentagon), and military retirement. They differ from SS in two ways.
One, neither has a revenue stream of any consequence. Congress each year tosses $100B in obligations for new bonds in OPM and something like $50B for military.
Second, neither has anyone debating the actuarial mess posed by both. Neither is in as good shape as SS.
If the rules for SS depend on the continued anymosity of the GOP, then same for military and OPM promises?
While DVA spends about another 1% of GDP for indigent veterans. and educating veterans.
I am sorry but an error of one percent in a billion or trillion dollars is no more significant than an error of one percent in a thousand dollars or ten.
If you or I were going to get that one percent of a billion, or have to pay it, THAT might be significant, but if 200 million people are going to share that one percent of a billion it is not significant.
This is the core fallacy that Peterson depends upon.
we are NOT talking about “real money” here.
we are talking about an estimate or prediction… a phantom.
moreover it is a guess about something ten years away.
one percent of a billion dollars divided among 200 million taxpayers is five cents. five cents “maybe” ten years from now is not significant.
by people whose guesses are not notoriously accurate.
Dale we are not talking about 1% of a billion dollars, we are talking about 1% of 25 trillion dollars. Which means multiplying your nickel by 25,000.
And not to put too fine a point on it your proposals to fix Social Security (80 cents a week) are themselves based on “small” numbers. That is as expressed as a percentage of GDP over 75 years. Once again we are talking about less than 1%. Should we just ignore THAT number which is generated “by people whose guesses are not notoriously accurate” or use it as the basis of a proposal that you press at every opportunity, germane or not?
Are you suggesting that Northwest or its predessessor the Coberly Plan are just based on “a phantom”? If so you and I have wasted a lot of time and bandwidth over the last half dozen years plus.
Krasting your link does not support what you claim. Where do you get the “few days later”? And this is not a revision of the SocSec Report but instead an adjustment between estimated receipts and reconciled receipts, something that is explained by clicking on the explanatory link on the page you link to:
Once again you don’t seem to understand the material you link to.
Fine Webb you know everything, and no one but you has anything to say of value. Anyone who does not stand behind you is a fool, and subject to insults.
Oh by the way, If you were to look at that report on a daily basis you would see how the numbers are introduced. It is not a single data dump. The numbers are revised. The info on adjustments to prior years can be a significant YoY swing. If one were trying to measure what was going on with SS (on a short-term basis) one would have to pay attention to these adjustments.
You don’t do that, I do. If you did, you would see that some info is introduced “a few days later”. Do you think I just make stuff up? Why would I do that?
The adjustments to prior years is introduced quarterly and is a number to look at when evaluating SS in a given year. For example, the adjustments in past years (SSA #s)
When I saw the adjustments in 2010 I knew that SSA would miss its numbers for the year, and that what was going on with receipts did not support the consensus numbers. So I said so in print.
You called me chicken little when I said that SS was looking at significant revisions to its glide path. Actually I was just looking at the data and correctly interpreting what it was obviously saying.
So I’m just a no-nothing fool, but I do watch the numbers.
Excerpts from page 114 in App A, as provided by Bruce, above.
“…forecast of economic growth,” “revenue projections,” “CBO has
slightly reduced its projection,” “GDP is now projected,” “CBO
anticipated in August,” “is projected to be lower by,” “The projection for
inflation as measured by,” “CBO also has lowered its projections,” “specified in the economic forecast,” “change in the forecast has led CBO,” “in its projections of revenue..”
Note the repetitious use of projection and anticipation. One concept is a guess about a future event and the other is waiting for that event to occur. From the Random House dictionary: project, verb, “Synonyms:
1. proposal. 6. contrive, scheme, plot, devise.” Note the absence of any thing to do with objective facts or concrete reality. Not that there is anything wrong with guess work, but a projection can have the character of a scheme, a plot, a contrivance. A projection may be used as a means to devise a scenario that may take place in the future. A projection is one way in which to legitimize the anticipation of a scenario that fits into a preconceived end result. It’s as though one is saying “the future is now” though it will not occur until some time in the future.
Krasting lots of people except me have things of value to add to the discussion. Even you on occasion. For example you were extremely helpful when the question was determining the real cost of servicing Debt Held by the Public once we subtracted out Fed Holdings (and controlled for their outsized holdings on long term vs short term debt). I had a very very important economist on my side of the aisle belatedly check in on that question, saw that it had been satisfactorally answered (in good part thanks to you) and then moved on.
But I think that was because the question at hand was one that fed right into the strengths of a retired bond market professional. Like you. You clearly have an understanding about how the public bond market works. Which you seem to think automatically translates over into understanding the mechanics of how the Social Security Trust Funds work. Well from what I see you mostly don’t, and frankly I don’t see a lot of people jumping to your defense. Like ever. Which fact never seems to penetrate.
Now in the case in hand you seem to refer to some Report which changes daily (“If you were to look at that report on a daily basis you would see how the numbers are introduced.”) yet you seem to be referring to the following web link:
Which reports estimates by month and then quarterly adjustments as actual payments come in and the data can be reconciled. But near as I can see these are not reports about stock but instead about flow and there doesn’t seem to be any obvious way to get from the latter to the former. And since you supply no explanations at all but simply supply what amount to blind links you leave me no choice but to try to reconstruct WTF point you think is self-evident.
Now it maybe that the Report you are referencing in your 11:22 is not in fact the same reporting that your were referencing in your immediately preceeding 5:35 “Just hit go”. But if so you need to make that clear. Instead all I am seeing is the numeric equivalent of word salad.
Now in your defense there does seem to be some relation between the number reported in the lower right hand quarter of the table, that of total employment taxes and the projection from the previous year’s Report. That is there is a calculated stock number from all the various flows that can be compared to a projected stock number. But it is not at all obvious whether or how the intervening flow numbers actually add any value. Of course there will be bottom lines in common just as there are in any set of statements for any given business. But that doesn’t mean you can just read off income numbers or gross profit or cash flow from a balance sheet.
Now clearly there may be elements of your argument that I am not understanding. But mostly you don’t bother to spell them out. Instead you just point to some new type of accounting report and claim that it proves that I am an idiot.
Well I am not from Missouri but that doesn’t mean I can’t adopt their motto: “Show Me”. And nobody here at AB seems to think you have met that test. Which is a little odd if you have been killing me all along. Per you.
Regarding the art of forecasting, as in “…forecast of economic growth.”
Again from the dictionary. forecast:
6. a prediction, especially as to the weather.
7. a conjecture as to something in the future.
8. the act, practice, or faculty of forecasting.
verb (used with object), forecast or forecasted, forecasting.
1. to predict (a future condition or occurrence); calculate in advance:
to forecast a heavy snowfall; to forecast lower interest rates.
2. to serve as a prediction of; foreshadow.
3. to contrive or plan beforehand; prearrange.
Note the reappearance of the words contrive, conjecture and prediction. Good to know that major legislation affecting important quality of life issues, disguised as economic science, is based on other than objective realities.
you are digging yourself in.
the whole point of “the coberly plan” and “the northwest plan” is that
in the first place “coberly” showed that five trillion dollars reduced to eighty cents per week for the average taxpayer per year.
and in the second place “northwest” showed that NOTHING had to be paid unless the “prediction” actually “came true”.
scaring yourself with big numbers is the Krasting plan.
[for the college professors among us, the “trigger” for the tax raise (eighty cents per week) in the Northwest Plan is technically also a “prediction,” but it is a prediction with a measure of reality.. a technical finding by the Trustees of “short term actuarial insolvency.” This is different from the CBO “prediction” in that it is immediate and self-limiting… to the extent that the small tax raise “corrects” the predicition it is self limiting. I am very sorry that those follks who are word bound will not understand the distinction. Actually the distinction doesn’t matter so much… it’s the “thing” that matters, not what we call it.]
We can stop the hysteria and the manipulation of the public by the Big Liars simply by pointing out first what their prediction amounts to…. a tiny amount of money for real people…. and what to do about it…. raise the amount of money those people save (the payroll “tax”) that tiny amount and see what happens next.
It is always more difficult to solve a problem when you start by ruling out talking about the solution.
BI makes the point that the CBO numbers put the end date for the SSTF at 2029. A year less than was previously projected.
Does it matter that the date has been moved up?
In 2015 SS will run a monthly cash deficit nine months of the year. In 2025 all months will be in deficit. THEREFORE the SSTF must have about one year’s worth of benefits in the fund to insure that there are no interruptions and that the program has ‘integrity’.
The one year minimum has been supported by many at SSA, including Goss. I would hope that Webb would agree that running the TF to zero makes SS a hostage and therefore not an option.
What are the benefits expected to be in the years 2025-28? SSA has 2023 at 1.5T.
My point is that CBO’s 2029 is not the critical date. The year that the TF hits 1-1 is when things get interesting. I extrapolate from SSA data and CBO projections that the TF hits 1:1 in 2026/2027.
That’s 11 years from now. Still far away. It will be 9 years (or less) when the next president takes office.
So the next prez will have a plateful of SS issues to deal with. Who would you folks like to see running the show while the very important decisions about the future of SS will be made?
Hillary? Lizzie? Bush? Sanders? Mitt???
a billion here, a billion there…
my talk about the billion was in reference to Dirkson’s witticism. but “cute” is not the same as making sense.
Webb thinks it makes a material difference if HE was talking about one percent of a $24 Trillion GDP. Actually it makes NO difference as to the question of the significance of the guess.
I could talk about the trillions and trillions of angels who can dance on the head of a pin, but it’s still the head of a pin.
your last comment would be more interesting if it made an actual point. what are we worried about here? who we are going to elect president?
and that will be affected by anything you have said here about CBO’s guesses?
It may well be affected by CBO’s guesses… that’s the reason they jiggle the numbers. But you offer nothing except that we should “believe” the CBO. Where does that get us?
With Webb’s permission, I will point out again, that we CAN point out that the CBO guess, even if honest, suggests a very minor increase in the cost of Social Security will solve the problem entirely. If we can’t get that idea in front of the people… and make them understand it… we will be subject to the phony debate about how to cut Social Security to avoid the future “huge” tax increases… “Trillions and Trillions of dollars!” when the number that matters is “a few cents per week per taxpayer per year”… though if we wait it will be “a few dollars (about ten or fifteen) per week per taxpayer (but not per year… it will come in one bite.
And the phony debate will be resolved with a phony compromise.
Benefit cuts… which won’t be small… and some form of “privatization” and means testing. Or, god help us, increasing the “tax on the rich” which the rich will not pay, but will use as an excuse for cutting every social program in america.
We have been around and around this for years. You never get the point. But you have succeeded in getting even those who do… or did… to spend time arguing with each other about things that don’t matter.
“the one year minimum has been supported by many at SSA, including Goss. I would hope that Webb would agree that running the TF to zero makes SS a hostage and therefore not an option.
but no one here has argued against “the one year minimum.” Krasting argues with himself and thinks he has made a point.
“Does it matter that the date has been moved up?”
The answer is “no.” The date of trust fund exhaustion, or the date it reaches “one year’s reserve” has always been subject to fluctuation. but we have always known that date will be reached sooner or later. the answer is to adjust either the tax or the benefits to “balance the books.” adjusting the benefits (cutting them) would cause great hardship to millions (hundreds of millions in the long run). adjusting the “tax” (the amount of money people are required to save for their own retirement) would amount to an unnoticeable cut in their take-home pay, which will increase ten times as much as the cut every year.
but moving the date up without people understanding this WILL matter, as it is meant to, by promoting an hysterical act by Congress, and defeated acceptance by the people, of changes to Social Security that will destroy it as an effective means to prevent deep poverty in old age.
I can’t see that Krasting offers us anything but “get hysterical now before it’s too late!”
maybe this will help.
Mr Webb says that one percent of 24 Trillion dollars IS significant.
But it is a GUESS about the economy ten years from now. A one percent error in that kind of guess is NOT significant.
Moreover, even if the guess was a solid, reliable number, one percent of 24 trillion dollars is 240 billion dollars.
That would be a lot of money if some ONE had to pay it. But no one has to pay it. It’s a guess about the economy.
But lets say it means something. 240 billion dollars divided by 240 million taxpayers (ten years from now) would be one thousand dollars per taxpayer.
but remember, this is not a guess about the tax bill, it’s a guess about the GDP. Since it’s a guess that GDP will be 1% lower, it’s a reasonable guess that taxes will be 1% lower. The only “problem” would be that the government wants to spend the money AS IF government expenses went up even when GDP is lower. This might be true, But by no means is there any necessary connection.
Meanwhile only about 30% of GDP is “income subject to” the payroll tax. So that 1 thousand dollars per taxpayer amounts to about 300 dollars per taxpayer, of which the worker would pay 150 dollars IF otherwise “benefits” cost the same as “expected” before the one percent shortfall in predicted GDP.
Now 150 dollars per year is about three dollars per week.
Three dollars per week to guarantee you will be able to retire with “enough” to live on when you are too old to work does not seem to me to be “significant.”
Moreover, Mr Webb understood, or should have understood, that this is exactly what we were talking about when we showed that the Five Trillion Dollar Unfunded Deficit! amounted to a need to raise the tax eighty cents per week per year.
And Moreover, Mr Webb, who called it the Northwest Plan, understood, or should have understood, that pegging the increase in the tax to the actual (imminent) short term actuarial defict, moved the “guess” into the realm of reasonable prudence, and that IF the short term guess proved to be wrong, there would be no damage done, as the eighty cents could be rescinded on a year by year basis, or the workers could say, no, that’s okay, we’ll pay the eighty cents in return for higher benefits.
This is NOT the same as calling a pure guess by the politically compromised CBO “significant”. The one… the plan Mr Webb called the Northwest Plan… is a prudent plan to cope with rising costs as they occur. The CBO “prediction” is an invitation to get hysterical about the “worsening condition of SS” and cut it NOW before it’s too late to cut it before the people understand they could pay for any shortfall with a non significant increase in their payroll tax… their savings and insurance for their own retirement (and possible disability).
It helps if you can keep the whole picture in mind and not just join the Krastings running around screaming the sky is falling the sky is falling. One percent of Trillions of Dollars ! Oh my!
Bruce Webb said
“Dale we are not talking about 1% of a billion dollars, we are talking about 1% of 25 trillion dollars. Which means multiplying your nickel by 25,000.”
Is this significant?
That five cents what each of 200 million taxpayers would have to pay for Dirkson’s “billion dollars here..”
Webb thinks that 25000 nickles amounts to something significant.
Well, 25000 nickles is $1250 dollars. But this is not money anyone has to pay. It is the difference in GDP per taxpayer between CBO’s first guess and their second guess.
The “income subject to taxation for SS” is about 30% of GDP. Call it $400 dollars for a round number.
The payroll tax on $400 is Fifty dollars.
So, assuming that the worker has to come up with the money to make up the shortfall between his predicted income and the tax needed to keep his predicted benefits…. and this by no means has been established… we are talking about a dollar a week. In most cases the boss pays half of that, So we’d be talking about 50 cents per week.
Is this significant?
Remember, it’s a guess about something that might happen in ten years. AND if the GDP by then is 24 Trillion dollars, then GDP has roughly doubled, and pay would, presumably have roughly doubled, so the fifty cents ten years from now would be worth roughly 25 cents today.
and no this has nothing to do with “present value.” Which is another way clever people have of fooling you, and themselves.
As regards the “Coberly Plan,” if it were implemented (that small fica tax increase you have been supporting forever), I do not think it would slow down the debt/deficit hysteria crowd for even two seconds. These people voted nearly unanimously to undo the fica tax cut a few years ago. Did that stop these supposed anti-tax hike people from ranting about deficits and the need to cut future SS benefits? Not that I have noticed, not one bit. They are just total hypocrites.
thanks. you are right. except for two things.
the more important is that IF the people understood the “tiny tax increase” plan, the hypocrites would be outvoted.
the less important is, of course, if the plan were “implemented” it wouldn’t matter what the hypocrites thought.
i have no illusions about my ability to change the minds of the hypocrites. i have illusions about my ability to educate the people.
it’s not that i can’t spell. it’s that my brain can’t spell. sorry.
i should stop there, but as for “undoing the fica tax cut…” I am not sure of your point. The tax cut needed to be undone. Social Security is supposed to be worker paid. Cutting the tax cut was just a way for the hypocrites to be able to say “see. SS really does affect the deficit!” to which the only answer was “No. SS is not affecting the deficit, it’s the damn tax cut that is affecting the deficit.”
I’m pretty sure I lost that war. Now the best we can do is point out that when the tax cut was undone no one noticed. Which, in a sane world, would suggest that when the time comes to raise the tax the two percent that will be required in 2030 or so, no one would notice either.
Except that with the hypocrites shouting “the end of the world has come! crushing burden on the youth! greedy grannies!” there will be people who think they are being robbed.
Coberly – this was a discussion of the CBO report. Stay on point. If you want to talk tax solutions in the context of CBO then you have to deal with their numbers, not yours.
CBO calculates that the Immediate and Permanent tax increase to address SS is 4%.
Take an American couple with some kids. He’s a plumber and runs his own business, she sells RE. Their combined income is $100k.
These people are self employed and pay the full 4% out of pocket. The cost to them is $4,000 a year, $80 a week.
Quite different than your 80 cents a week. 100Xs larger.
“stay on point” polly want a cracker!
i am glad you learned something from AB: how to deflect critics when they refute your arguments. “wah! that’s off topic. you have to talk MY way! If I say two and two is, uh, three… then you can’t say “It’s four,” because that’s “off topic.””
Your plumber is making two and a half times as much as the average American. It is true that his payroll tax will ultimately reach about 16% of his income (during the time his income will double). So he will go from paying today about 12000 per year for his Social Security….which is about what it will cost him to pay for his retirement . By the tme he needs to pay 16000 per year it will actually be 32000 out of an income of 200 thousand per year. which is about what it will cost him to pay forhis retirement. Retirement is not cheap. That’s why you need your Social Security insurance.
But I should not say that because you and all the other wooden heads will imagine that SS is going to cost them 16000 a year now, today, out of their less than 40k incomes. That is NOT true. But apparently you and the greater part of the american public are too stupid to understand that.
Meanwhile, I think of that poor plumber struggling to get by on only a hundred and seventy thousand dollars per year after setting aside 30k for his retirement which, by then will probably cost about 60k per year and last an average of 20 years.
Because god knows, it’s unfair that we should have to set aside any money for our retirement… especially in an insured plan that protects us from inflation, market losses, personal accidents, improvidence, and a life of such low wages we can’t afford to save enough for retirement
Meanwhile I know damn well what the “immediate and permanent” fix is. I also know why one tenth of one percent this year and next year and the year after that is a better fix. And I have tried to explain it to you about a thousand times. But you don’t want to learn because it would spoil your point, which as far as I can tell is “We’re all going to die!” which is true, but while it is the immediate and permanent fix to all our problems, it is not the best fix.
I DON’T “want to talk tax solutions in the context of CBO..” I want to point out that their numbers are probably bogus and certainly misleading.
THEIR “one percent lower” estimate of GDP ten years from now would amount to a dollar per week increase in the needed tax… combined IF “all other things were equal” which they won’t be. As I have tried to explain above.
It is always harder to solve a problem when you refuse to allow the answer into the discussion.
But don’t feel alone, Krasting. smarter and more honest people than you feel exactly the same way.
Meanwhile, and honor requires me to point this out… all you people making about 40 k, working for a boss, eighty cents per week more each year will still pay for your expected higher costs of retirement. even if you and Krasting can’t understand the numbers. And if your wages rise, as they are expected to, about eight DOLLARS per week each year, you won’t be “out” that eighty cents” you will be ahead over seven dollars. AND you will get the money back, plus interest… more than twice what you paid in… when you need it most.
Sorry, but those are just the facts, ma’am.
what Krasting can’t get through his head… or let into yours
is that “immediate and permanent” is NOT the best way to pay for the expected needed tax increase over the next twenty years.
I HAVE shown how one tenth of one percent per worker per year DOES pay for the needed increase as it is needed and AS YOU HAVE THE MONEY TO PAY FOR IT.
This is the Big Secret no one wants you to know. It is “immediately and permanently” “off topic.”
Oh, one thing that is probably confusing Krasting:
the dollar per week (combined) that results from the “one percent lower GDP” projection is NOT THE SAME THING as the ultimately four percent (combined) increase in the payroll tax that will be required by the Trustees projected growth in benefits (mostly because you are going to be living longer) and lower growth in wages (mostly because you have let the corporations rule the country and hold wage growth down).
Krasting doesn’t know we are talking about different things, so he thinks he has a gotcha… my “dollar per week” is not the same as CBO’s eighty dollars per week. Of course it’s not.
One is a “projection” by the Trustees, that has been fairly stable for the last ten years, that retirement costs will go up faster than incomes, so a larger percent of income will need to be set aside for retirement.
the other is CBO’s most recent jiggling of the numbers so they can say the “Social Security outlook has worsened over the last year.”
Nothing has changed about the SS outlook. What has changed is that CBO found a new way to jiggle the numbers to make this year look “worse” than last year… but not so much worse they can’t say it again next year… and keep the hysteria going until they destroy Social Security as a way to insure that you can retire when you need to… or “want to, having paid for it yourself.”
well, since everyone has run away, perhaps no one will mind if i return to a point that aggravates me and i wish to make clear.
Krasting says “stay on point” and immediately changes the subject from the effect of CBO’s 1% “correction” in guessed GDP ten years from now to the effect of the long term expected increase in costs of Social Security relative to the long term expected lower increase in wages.
It is unlikely Krasting even knows he did this. But it is typical.
And even then he cheats. He wants us to look at… and be very afraid… of the cost of an “immediate and permanent” fix to the long term SS “actuarial shortfall” to… if he were still on topic… an estimate of the cost of that fix if instead of “immediate and permanent” it were introduced gradually.
And even then he cheats. Instead of looking at the cost to the average worker, he directs us, hoping we won’t notice, to the cost to two people making three times the income of the average worker and paying both the employees share of the tax and the employers share.
Yet he will call this a “regressive tax” when it suits him.
And he can’t remember that that “cost” is not “money lost” but “money saved” at interest and insured against inflation, market losses, and personal bad luck of all kinds. His “plumber” (Joe?) will get back more than twice what he put in when he is likely to need it far more than he does today.
Meanwhile, the “gradual tax raise at need” will cost the average worker an extra eighty cents per week each year while his wages are going up an extra eight dollars per week each and every year.
You can stay “on point” if you forget what the point was, and like the famous barnyard chicken can be induced to concentrate on a single spot on the ground while you lie about it and the farmer sharpens his axe.
And, important, I think Bruce Webb did heroic service bringing this to our attention.
I am sorry he disagrees with me about “significant,” both what is significant and which side of “significant” the Northwest Plan is on. But I have had some experience with “significant” numbers in problem solving and staying “on the point” of significant arguments… if not always on the point the politicians in the room want to make.
The July 2014 CBO report on SS had this to say:
to bring the program into actuarial balance
through calendar year 2088, given CBO’s projections,
payroll taxes could be increased immediately and perma-
nently by 4.0 percent of taxable payroll
So if we’re talking CBO #s and the SS outlook, then you have to come to grips with these words. Its all well and good if you respond, “CBO is crooked”, but by 2016 SSA’s report will be the same as CBO. The nut you have to crack is 4% of payrolls. What will you say then?
Do I advocate a 4% I&P? NO!!! It would be a huge hit to the economy. In 2015 dollars it means a tax increase on workers/employers of $280B! By itself, it would be the biggest tax increase in history.
Coberly – this is a very big bucket you have to fill. You can’t fill it with .1% annual increase any longer. You only have 14 years left (12 if you draw the line at 1:1 on the TF ratio).
To address SS it is necessary to 1) abandon the 75 year solvency measuring stick (IMHO It’s stupid to even talk about that time period) 2) come up with a viable plan that allows SS to go smoothly to PayGo in 2029-2033 (if accomplished, then long term solvency is assured)
To do #2 requires a combo approach. This can’t be ‘fixed with just tax increases. Things on the list include:
-Raising income by increasing the cap and altering the formula
-Means testing benefits
-Increase the FRA years
-Increase Payroll taxes on all workers
I asked about who you wanted as next Prez. If it were to be Hill or Liz you can be damn sure that those two would not support a plan that resulted in increasing taxes on all workers. I’m not sure a Republican would support that either.
One of America’s biggest problems is wealth and income distribution. Raising PR taxes runs in the wrong direction. The NW plan (single solution- tax hike only- resulting in a PR tax hike of >4% over time) is not going to fly on the economics, or the politics. Wrong decade for the Coberly fix.
CBO report, quote from page 50 of the report:
the 4% needed to balance the SS books over the next 75 years has been well known for years.
what i showed a number of years ago was that this 4% could be reached one tenth of one percent per year. by starting early there are some benefits from earning interest on the no longer declining trust fund. That extends the “deadline” by a number of years.
As of the Trustees 2014 Report this was still possible if we began making payments in 2018. There may have been some change since then in outlook, or we might miss the 2018 date. If so it won’t be a big deal. A few more pennies per week per year.
You don’t understand this stuff. You keep thinking that simple math applied to numbers you don’t understand proves the problem cannot be solved. You are wrong. You have always been wrong.
Social Security is not a “tax.” It’s a way for workers to save their own money protected and insured for their own retirement. The cost of their retirement is going to go up because they are going to live longer. Their wages are not going to go up as fast as they have in the past. This means they will need to save a little more as a percent of their wages to have enough to retire on. 4% is a little more. MOst workers will only see 2%. AND if they start soon, they can raise the tax one tenth of one percent… about eighty cents per week… at a time and only reach the 2% figure about twenty years from now when they will be making at least 20% more than they are today.
You may be right that they can’t understand this. But it is a crime that no one who has a forum is trying to explain it to them.
Talking about means testing and raising the tax on the rich is irresponsible. It is a dishonest way to destroy Social Security a way for people to save for their retirement. Offering to turn it into welfare is the first lie the Big LIars told. It is a shame to see the liberals offering to do the dirty deed for them.
“Coberly – this is a very big bucket you have to fill. You can’t fill it with .1% annual increase any longer. You only have 14 years left (12 if you draw the line at 1:1 on the TF ratio)”
Krasting you are dead wrong. Because every .1% moves out that “14 years left”. Does it move it out ENOUGH? Well you would have to examine the spreadsheets and then if necessary adjust the amount and pacing of that series of .1% increases. And yes the cumulative effect of the series arithmetically has to equal the effect of 4%I&P. (Assuming CBO is right here). But “equal” does not require “I&P”, it just means the phasing has to come in fast enough so as to never put the TF Ratio to zero, or if we want to preserve Short Term solvency never to less than 100 (your 1:1) or even ideally never get within ten years of that 1:1 (the official test for Short Term Actuarial Balance).
Dale has pointed you to the spreadsheets over and over, you just continue to claim that the numbers MUST be lying. Apparently because you believe that “I&P” just HAS to be that: Immediate. Well it doesn’t. Because ANY increase in FICA pushes out the date of TF exhaustion. To repeat the only question is timing and magnitude. This isn’t even subject to dispute. Which makes me wonder at why you continue to dispute the arithmetic with spurious (yet to the casual observer apparently math based) arguments to the contrary.
Webb – Sigh…
Yes we’ve through this before. You have spread sheets – so do I. We do not agree on this. There is not enough time left before 2029 to address the shortfall at SS with the NW plan.
There is not much I can do to convince you of that, so I won’t try. Someday you will look at your computer and conclude – “The lines have crossed on NW”. (you do realize that US ten year is now 1.6% – right??)
Move on from the numbers and focus on reality. Even if NW “worked” it would not be embraced.
There is zero, repeat zero chance that SS gets ‘fixed’ with a single solution of raising taxes. (I&P or NW) That is not going to happen. Just face those facts.
You say your are a champion for SS. You say you want to save and protect SS. Ok fine – but you go about it in a way that is not helpful to your cause.
Do really think that raising taxes on business owners, the self employed and average workers is something that could fly in the US congress?? With the next president? With the American people?
Not a snowball’s chance in hell. Yet you hang onto this idea like a stubborn child. The cost of fixing SS will have to be spread around to all of the stake holders. That means tax payers and beneficiaries have to get squeezed. The logical squeeze is to to have those who earn more pay more (cap), and those that have more get paid less (means test).
We can argue about this forever. We will not agree. So let’s let this end for now. In two years we can pick this up again. By then. even you will come to agree that a single solution approach is not going to be the path that is followed.
Webb – you have a significant voice in this debate. You are more knowledgeable about this topic than most elected officials. Yet you have chosen to marginalize your voice by sticking to a plan that has not a chance in hell of even being considered.
if the price of bread went up a nickle a loaf would you say there wasn’t a chance in hell that people would pay it?
if the price of car insurance when up fifty dollars a year would you say there wasn’t a chance in hell that people would pay it?
but if the price of retirement goes up eighty cents a week you say there is not a chance in hell that people would pay it.
it is possible… very likely even… that the politicians are as imbecile as you are, but since you don’t begin to understand what you are talking about it would be unreasonable for us to throw up our hands and say, “oh, there’s not a chance in hell people will understand that the cost of insuring they can retire when they are too old to work is worth a great deal more to them than eighty cents per week.
your “spreadsheets” are worthless. any moron can write a spreadsheet that ignores all the factors that affect the price of SS and call it “proof” that “northwest plan” won’t work. But the real experts who are paid to understand this stuff don’t agree with you.
Even the Committe for a Responsible Federal Budget admits that the northwest plan works. They just want to “reform” Social Security.”
By which they mean make it friendlier to the financial services industry.
Which is where I think you made your money.
Krasting the following just proves our point:
“There is not much I can do to convince you of that, so I won’t try. Someday you will look at your computer and conclude – “The lines have crossed on NW”. (you do realize that US ten year is now 1.6% – right??)”
The yield on the 10 year has bupkis to do (directly) with Social Security solvency. The Trust Fund is not a Pension Fund that relies on ROI. It just isn’t. But somehow you have managed to take a series of numbers that show a deterioration in solvency as measured by TF depletion and correlated it with interest rates in a way that has convinced you that lower rate on the ten year will accelerate the deterioration. But it doesn’t, at least not in the straightline way you hve convinced yourself they would
Dale sometimes goes overboard in his insistence that the Trust Fund doesn’t matter. But he is certainly correct to point out that its ROI is just froth on the economic waves that really matter. For lots of reasons. But let me try one more out.
To the degree that yields on the 10 year reflect SOME sort of premium on inflation the lower they are then so is the lower the future cost of Social Security. Because Cost is more driven by inflation that it is by Real Wage. While Income is driven by Real Wage. Now sure ULTIMATE Cost is also driven by Real Wage. But with a multi-decade lage. Now understanding why this should be is complicated and not easily explained. But it becomes infinitely harder if people start by thinking that the Trust Fund is just a Pension Fund invested in Bonds.
I had thought we had at least gotten beyond this particular point and here you are throwing the 1.6% on the 10 Year at me AS IF IT MATTERED. It doesn’t. Not in any important way. And clearly we have been wasting our time for the last couple of years. Except for the fact that we are treating you like one of Socrates interlocutors. (Which isn’t a compliment).
as you have noticed, it is hard to explain. especially to those who don’t want to know.
i don’t think i go overboard when i say the trust fund does not matter, but i guess i open myself up to being dismissed by those who think it does… as of course it does.
but it doesn’t matter in the way the screaming headlines that say we are all going to die because the date of the death of the trust fund has been moved up a year or two from last year.
and as a matter of “fact” SS could get along without a trust fund and it would make no difference to the basic operation of the program.
now that last sentence is a bit of an exaggeration. but sometimes i indulge in simplification to try to make a point. turns out that doesn’t help either.
the trust fund provides a “bridge” over temporary mismatch between money coming in (taxes) and money going out (benefits). that’s important. and the interest on the fund keeps the tax about a percent of income lower than it would otherwise be.
and the interest rate affects that. but it really is not important.
Krastings real problem is that he can’t see that the date of the death of the trust fund does not matter…. or would not matter if it wasn’t being used as a scare story to stampede people into accepting cuts in benefits or some total redesign of Social Security which would destroy it in the long run…. preserving only its name applied to welfare as we knew it. The goal of both the Petersons and some foolish people on the left.