Social Security and conversation

(Dan here…Social Security is an issue that seems to generate a lot of firm beliefs and passion, as witness recent threads.  It is rare that people refer to actuary material.  On the other sides of the issue are people like Andrew Biggs, who is knowledgeable and smart in his arguments.  I am posting this as a reminder to readers that contributors do usually go the extra mile…in this case even recently, and since 2008 with Dale, Bruce Webb, and Arne Larson.  Below is a copy of a response to Dale from the Deputy Chief Actuary 2017)

 

Dear Mr. Coberly,

Representative DeFazio’s office forwarded your letter of August 5, 2017 to our office and asked that we respond to you. Your understanding of the financing of the Social Security Trust Funds is on target, including the implications for borrowing and debt. We appreciate your careful attention to the Trustees Report and the projections we develop for it in order to show policymakers the magnitude of any shortfall they will have to address.

We have looked at your thoughtful and detailed proposal for increasing the scheduled payroll tax rates for Social Security. As I’m sure you are aware, we have scored numerous comprehensive solvency proposals and other individual options for making changes to Social Security. These analyses are available on our website at https://www.ssa.gov/OACT/solvency/index.html and https://www.ssa.gov/OACT/solvency/provisions/index.html.

Your proposal would increase the payroll tax rate gradually, by 0.2 percentage point per year beginning in 2018 (a 0.1-percent increase for employees and employers, each). Based on the tables you provided, it appears you would propose an “automatic adjustment” to the rate in the future, allowing the tax rate increases to stop and then resume, applying a 0.2 percentage point increase whenever the 10th year subsequent would otherwise have a trust fund ratio (TFR) less than 100 percent of annual cost. The intent appears to be that TFR would not fall below 100 percent. If we are understanding your proposal correctly, this type of adjustment would very likely maintain trust fund solvency for the foreseeable future, based on the Trustees’ intermediate assumptions.

Also, based on our rough estimates, a 0.2 percentage point increase in the payroll tax rate each year from 2018 to 2035, reaching an ultimate rate of 16.0 percent in 2035 and later, would eliminate the actuarial deficit and keep the TFR above 100 for each year thereafter. An increase to 15.8 percent in 2034 would fall just short of both goals. Note that these rough estimates do not include any additional “automatic adjustments” such as the one you propose.

We hope this information is helpful. Please let us know if you have further questions. We are also copying Rina Wulfing from Rep. DeFazio’s office on this email.

 

Karen P. Glenn
Deputy Chief Actuary
Office of the Chief Actuary
Social Security Administration

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