bu Dale Coberly
WHAT THE TRUSTEES REPORT REALLY MEANS
REALLY “DOING THE MATH”
[a few years ago the word “du jour” among journalists about SS was “it’s the math.” Of ourse none of them actually did the math.]
[note: i use the tax rate for each the worker and the employer because this is what the worker “sees” and it is what the employer sees. It is also the legally correct division. The Trustees Report usually combines the separate tax rates into one “combined” tax rate. So, where they say a 3% immediate and permanent increase, or an eventual increase of 4%, I say a 1.5% or 2% increase “each.” Debating which is “correct” is a waste of time: it is what it is.]
I wrote a recent post I called “What the Trustees Report Really says.” This post takes a little further look at the possible futures that can be mathematically deduced from the 2020 Report.
The 2020 Report says that Social Security is now not in “short range financial adequacy”. This means that ten years from now the Trust Fund will be less than the prudent reserve of one year’s full benefit payments. This is not an emergency, but it does mean the one tenth of one percent per year increase in the payroll tax, for each the worker and the employer, that would have avoided this projection will no longer work.
But even though it is now too late for the one tenth percent increase to avoid short term inadequacy, it is not too late for a two tenths percent raise in the tax per year to erase that short term inadequacy and keep SS solvent forever. This amounts to two dollars per week per year for the average worker making one thousand dollars per week. Wages are projected to rise ten dollars per week per year, and the tax increase does not go on forever. In fact in a very short time it will not be needed “per year” but only every other year, and then every third year, and then every fifth year year…pushing back the time the full 2% increase, that will otherwise be needed in 2035, to 2065.
Or, if we don’t act this year, a two tenth percent increase next year and the years after that will keep SS solvent forever.
Or, if we wait until 2030, a two tenths percent increase in the payroll tax per year will keep SS solvent forever.
Wait. What’s going on here: delaying the start of the gradual repair of SS actuarial solvency does not change the size of the per year tax increase that will be necessary?
Yes. What happens is the “per year” needs to be a litle more frequent in the later starts, and leaves the program in short range actuarial insolvency longer, without affecting it’s ultimate solvency or the ultimate tax rate needed to keep it solvent forever.
Finally, I did a calculation on the assumption that this year total wages for workers would fall 25% due to the coronavirus recession. Turned out that would have almost no effect at all if FICA was raised 0.2% “per year”. This result surprised me until I thought it through: The current Trust Fund is sufficient to see us through a few very bad years.That is what it is for. By gradually raising the payroll tax on those who are still working, the drain on the Trust Fund is slowed, and when the recession ends, the increasing tax will gradually restore the Trust Fund to full solvency, if we don’t panic from the “short range financial inadequacy” that we will have to live though for a few years.
But the biggest danger right now is the Trump payroll tax holiday, which the Democrats are “lukewarm” to. If they cut the payroll tax there is no law requiring them to replace the money. And if they get away with cutting it, they can probably get away with keeping it cut… until they can drown SS in the bathtub. At the very least they will call replacing the money lost to the tax cut “proof” that SS is a leading cause of budget deficits and the national debt.
I am relying on you to understand that two dollars per week per year is not a huge amount of money to pay for your eventual basic needs in retirement… which you will have to pay for one way or another. If you don’t understand that you are at the mercy of the politicians, Republican and Democrat, who do not have your interests at heart.