CRFB’s FINAL ANALYSIS OF 2023
CRFB’s FINAL ANALYSIS OF 2023
SOCIAL SECURITY TRUSTEES REPORT
Analysis of the 2023 Social Security Trustees’ Report, Committee for a Responsible Federal Budget, Social Security
Dale Coberly:
I reported a few days ago on CRFB’s “preliminary analysis” of the 2023 Social Security Trustees Report. I hoped to show then that though CRFB reported “true” facts, they surrounded those facts with misleading language intended to promote hysteria and ill-considered policy changes that would destroy Social Security as meaningful retirement insurance.
I said then that I would look at their final report. I have. It is essentially the same as the preliminary report: True facts designed to mislead.
I won’t have time for a complete discussion of their analysis today, but I’d like to point at a couple of things that hit me in the eye.
First, they have a Social Security “reformer tool”: The Reformer: An Interactive Tool to Fix Social Security (crfb.org). You can enter your own proposals to fix SS shortfall and it will tell you how well it reforms Social Security in terms of closing the long term projected actuarial deficit. [Note the is an actuarial deficit and not a real deficit or debt, and it has nothing to do with the Federal Budget deficits and debt. CRFB does not tell you that,]
But he calculator limits your choices. In particular it does not allow a gradual increase in the payroll tax rate. We have shown that a one tenth of one percent increase (about a dollar per week) per year would make SS solvent forever after a few years while real wages are expected to go up over one full percent per year. So, like George W Bush’s Social Security Commission, everything is on the table except what works.
Second, they produce a chart* which shows that the tax increase that would be needed is 38%.link But this is 38% of a 6% tax (for the worker) or about a 2% increase in the tax as a percent of wages. An amount already shown to go unnoticed by almost all workers.
Moreover they do not bother to point out that this is not a real tax. It is an increase in the amount of money you need to put aside for your own retirement… and would need to put aside whether there was a Social Security tax or not. But with Social Security you are guaranteed to get it back, .about three times over, when you need it most…, due to the automatic “interest” that comes from pay as you go financing [other things being equal the next generation paying for its own future retirement, pays at the same tax rate, an amount automatically adjusted for inflation and growth in the economy. This is NOT “the young paying for the old” it is just where money comes from in any financial instrument that takes in money today and pays out with interest later.]
That means that if you pay a 10% tax on a 50 k income, or about 5k per year, by the time you retire in 35 or 40 years, the guy paying for his own retirement at the same tax rate of 10% but on an income that would be about three times yours, or about 150k, would pay about 15k into Social security, which is where your benefits would come from. in this case about 30k per year.
Note the doubling of what he pays in to calculate your yearly benefit comes from the fact that there are two workers per beneficiary, or, what is the same thing: the fact that you will live in retirement about two years for every year you worked.
Note this is only an example I maded up to demonstrate how pay-go works. The real situation is a little more complicated.
As I said above this is only a quick take from CRFB’s “analysis” which utterly fails to provide an honest analysis of what the Trustees Report actually means to the average worker. I should have more to say about it in the fairly near future.
CRFB: “Delaying action until 2034 would make the needed tax increases or benefit reductions about one-fifth larger than if action were taken today. According to the Trustees, 75-year solvency could be achieved with a 28 percent (3.4 percentage point) payroll tax increase today but would require a 33 percent (4.2 percentage point) increase in 2034. Similarly, Social Security solvency could be achieved with a 21 percent across-the-board benefit cut today, which would rise to 25 percent by 2034….”
I will leave it to you to decide if this, while true, is intended to mislead…like pulling a red handkerchief out of your pocket “33% tax increase” while saying fast and low “(4.2 percentage point)”. I am more than a little jaded myself from reading CRFB reports over the years and then seeing how people “understand” them.
typos
“the fact that you will live in retirement about two years for every year you worked. “
i said that backwards: you will live in retirement about one year for every two years you worked and paid into Social Security.
other typo: the estimated increase in the tax is 33% of the tax not 38% of the tax.
this is still about 2% of payroll for the worker (4% for worker plus employer. or about 1.6% for each if started this year).
I don’t see that some things in this are good ways to think about Social Security. Most wage earners absolutely are going to compare what got withheld previously with whatever withholding results from a new tax law. If that goes up 30%, then that’s how most discussions about it will happen. Trying to discuss it as some much lower percentage isn’t going to prove useful to anyone. If +30% is what you believe is needed, just say that. Second, stop trying to convince young workers that they are just saving their own money for the future. What happens if you convince them that this is the case and they end up deciding that the current tax and the benefits that can provide them are the right balance? My niece is early 30s and retires around 2056. Try explaining to her that increasing the tax is all about her retirement but if she doesn’t agree to higher taxes, well her mom and dad are going to get cut back 20% or so in a decade….her uncle, too! And my own old hobby-horse: if you don’t increase revenue, why Treasury will have to net redeem much more outstanding debt in the coming decade, new taxes maybe, less spending maybe, higher interest offered maybe – maybe all of those. You know, kind of like, in spite of the labels, this does impact deficit and debt. AB is a small enough place that if what you mean is that talking about this in the most logical manner should be avoided because those with bad intentions here will have a lot to work with, then say that, and I think maybe that’s your message now for years.
Eric
you could be right. Most people are pretty stupid when it comes to numbers and money and especially numbers about future money.
but the ultimate tax increase would be about 2%. not 30%. and if you can’t live on 2% less today in order to have 25% more after you retire, you need to find a grownup to help you make decisions that don’t let you down badly when you get there.
as for talking about it in the most logical manner, that is what i am trying to do. you are talking about it in terms of your own private (but widely shared) fantasies about how Social Securit works. I have tried to explain it to you, and you are sure I am misleading you because you think you know something which is essentially a lie you have been fed by the people who expect to profit off your ignorance.
sorry if that is not polite. it is meant to be kind.
Eric
30% of what is withheld now which is 6.2% for an individual for 75 years. As Dale and I discussed, this year’s shortfall could be resolved by as little as one tenth of 1%. I am not sure how the CRFB calculates what is needed. By not explaining the 30%, they are engaging in fantasy and attempting to provoke the wrong conclusion.
Dean Baker: “An Aging Society Is No Problem When Wages Rise”
and here again:
Will Dean Baker’s Quiver Full of Solutions Stabilize Social Security?
The issue is very fixable.
Run
as far as I know CRFB uses the same calculations as i do: the Trustees Report.
The difference is that they use the numbers to scare people, and I use the same numbers to try to show people that the truth is not scary.
Back when I started this The Trustees Reported the “33% increase in the tax versus a 25% cut in benefits.” I pointed out that changing the base of their percents was dishonest. 25% of a 20,000 dollar benefit is a much bigger deal than 33% of a 6% tax.
no sane or honest person would report the choice that way. Eric thinks that because his daughter and everybody would think of it as a 33% tax increase, it is dishonest of me to point out that this is actually 2% tax increase.
The Trustees changed the way they report the needed tax increase after i pointed out the dishonesty of it (right here on AB). I doubt they read my posts, but maybe someone there figured out that blatant lies would tip off the people that something was rotten. [i believe the misleading description of the choice was changed shortly after a famous non partisan expert stopped working at SSA.]
CRFB has apparently figured out that blatant lies don’t tip off the people.
especially when you CYA with the fine print.
“Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA) [this was in 2007. note other dates and places.], where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President’s Commission to Strengthen Social Security.
This is what “Dale and I discussed”:
Bill
I just started looking seriously at the 2023 Report {this year’s).
here is something I noticed in essentially the first paragraph
181 Million workers contributed to SS (paid the payroll tax) in 2022.
SS {OASDI) took in 1,222 Billion dollars and paid out 1,244 billion dollars. [getting the 22 billion dollar difference from the Trust Fund].
Note that 22 billion is 1.8% of 1,222 billion.
So raising the payroll tax 1.8% would have closed the gap.
But the payroll tax is 12.4% of payroll. So the payroll tax would have had to be increased by 1.8% of 12.4% or about two tents of one percent of payroll.
This is for the combined worker plus employer tax. So the worker would only see a one tenth of one percent (of payroll) increase in his “tax”
Sound familiar? One tenth of one percent of a thousand dollars per week (50k per year) is one dollar per week.
Very likely the tax would need to be raised another dollar per week next year..while real wages are expected to go up over ten dollars per week. So the worker will be better off after paying the tax next year than he is this year..plus having saved enough to ensure what he will need when he can no longer work will be there when he gets there.
Now, I know this pattern will continue not every year for the next several years, We can afford it. We cannot afford not doing it.
Please note, these are just the numbers from 2022. The Report will show about the same thing when we look at the whole thing, but that will take me a while longer.
Oh. Take that 22 billion dollars and divide it by 181 million workers. It works out to $122 per person. Or two dollars per week. Or, since the boss pays half…about a dollar per week for the worker.
Please check my work.
Dale, in regards to my niece and workers about her age, what benefit levels would they see if the start collecting in 2056 without tax or benefit changes to current law? I get there are many, many assumptions, but am I wrong thinking that as the large baby boom cohort pass away that the benefit shortfall foreseen in ~2034 sort of autocorrects over the ensuing decades? Is the 85 years solvacy problem heavily loaded to a specific period? Like if retirees just have to suck it up for 20 years post-2034, things will balance again? Not saying this is the best course of action here.
in regard to your specific question..with no changes in the law or tax rate benefit levels in 2056 would be 25% less than they are today in real dollars.
to put that in today’s numbers..average benefits (and average means nothing to you: what counts is YOUR benefits which may be much less than average without the built in correction that SS offers.) average benefits today are about 25k or so..not a lot to live on, but enough (as I know) and way better than nothing.which is what you could end up with without SS. cut that by 25% and you end up trying to live on about 19k.
OR if you are making 50k today and work for a boss, you could raise your own “tax” [FICA “savings and insurance”] 2% or about twenty dollars per week. That’s changeing your after the tax income from 1000 dollars per week to 980 dollars per week. which i think you could manage to live on without even noticing the difference.
but i know from bitter experience you will come up with a whole bunch of objections which do not change the fact, but which you will hang onto for dear life because it takes a shotgun to get most people to change their minds about anything.
AND you can reach that 2% tax increase one tenth of one percent at a time {for a short time only: offer is expiring as we speak)… or about a dollar per week per year while your income is epected to rise about ten dollars per week per year. So that by the tine you reach that twenty dollar per week tax increase it will come from an income that is at least $200 dollars greater than today or 1,200 dollars…leaving you with 1,180 dollars after tax then versus 1000 dollars today.
note: i simplified the above to make it shorter and easier to understand (and write). it contains errors of detail that do not change the basic principle. feel free to find the errors. you can even feel free to believe they change the real point. i can’t stop you.
Eric
Things balance out again quite soon after 2035. But they balance out at the higher tax rate.
That is because people then will be living about two years longer in retirement, if the bad guys haven’t raised the retirement age by then. I want to say “trust me…” but i should say “think hard about it..” you won’t like it. AND IF YOU HAVE PAID FOR IT YOURSELF, THERE IS NO REASON WHY YOU SHOULD HAVE TO.
it is far far better for those future retirees to “suck it up” by paying the higher tax while they are working, than to suck it up by working two extra years or trying to live on reduced benefits, or turning it into welfare fare with all the expense and nastiness of means testing.
BY THE WAY
it’s 75 years, not 85 that the Trustees “actuarial window” calculates for.
ordinarily i would not bother to point this out, it is an immaterial fact for our purposes, and i make mistakes like that all the time myself. but in your case you make those mistakes without ever noticing them and by the time you are done you are thinking about something so full of holes that it makes no sense at all.
it’s like you fixed your own car: you could leave off the rearview mirror and the bumpers and still drive it to Chicago. but if you leave out just one of the bolts that fix the head to the block you are in for a long walk home.
One more thing to observe deception that CRFB is perpetrating:
Comparing a cut to an increase is horrible. If they were slightly more honest then they would observe that a 33 percent increase in taxes allows a 33 percent increase in benefits that can be distributed. I hope that 33 = 33 does not come as a surprise to anyone.
My point is that comparing the math of an increase to the math of a decrease, which they have in side-by-side charts, is a deceptive practice. (I also agree that the numbers are unhelpful, but that is not my point.)