Social Security Trustees’ Report Is Out So Is CRFB’s Analysis
Social Security Trustees’
Report Is Out
So Is CRFB’s Analysis
by Dale Coberly
Look, I don’t like CRFB. They claim to be the Committee for a Responsible Federal Budget (CRFB), but in the years I have been watching them they have looked more like the Committee to Cut Social Security.
Today my inbox presented me with a note from CRFB on this year’s Trustees Report. As far as I can tell CRFB is telling the truth here, strictly speaking. I will include Maya Macguineas’ statement here and some excerpts from CRFB’s “preliminary analysis”, so you can judge for yourself. Beware of wolves in sheep’s clothing.
I will add some comments of my own interlinear.
Macguineas’ statement:
Social Security and Medicare are hurdling toward insolvency, and we only have a decade to secure these programs for America’s retirees. Yet many in Washington would rather weaponize these programs than save them.
Anyone who pledges not to touch Social Security is endorsing a 20 percent across-the-board cut in benefits. Refusal to fix Medicare means supporting major disruptions in health services.
We don’t have much time left to save these programs from insolvency. Today’s youngest retirees will be 70 years old when Medicare’s reserves are depleted and 73 years old when the Social Security trust funds run out. Under current law, Social Security and Medicare will both be insolvent by the time today’s 56-year-olds reach the full retirement age.
Medicare’s finances are slightly better than projected last year, while Social Security’s are slightly worse. But the underlying picture hasn’t changed – these vital programs face large and growing shortfalls that will require reducing costs, boosting revenue, or both.
As partisans and special interests continue to demagogue Social Security and Medicare for short-term political gain, they are putting our nation’s workers and seniors at risk. It’s time for our leaders to take their heads out of the sand and put them together to develop real and lasting solutions to save Social Security and Medicare.
My comment: yes, she said hurdles. I’d take her statement with a huge grain of salt. She has never been interested in saving Social Security except by destroying it. And the folks “weaponizing” Social Security are her friends in Washington, not the people trying to point out that the Republicans are trying to weaken it so they can destroy it later. Again, “pledges not to touch Social Security could mean either the R’s or the D’s, depending on who you trust, and “fix.”
in “refusal to fix” might mean “cutting it” or “paying for it” or even “finding a way to control price gouging by providers.” Other than that, I could agree with her word for word. I’m not so sure about what’s hidden behind the words.
What we have here is essentially a call to panic and “fix” Social Security before anyone has a chance to figure out what they mean, or that the offered fix will result in catastrophe down the road when it will be too late to fix it, if anyone even remembers the fix that destroyed it.
By insolvent, she is referring to the projected depletion of the Trust Fund. She does not mention that raising the payroll tax about a dollar per week per year would solve the insolvency forever.
I think her calling SS insolvent when the Trust Fund is depleted is meant to stampede people into thinking there will by NO money for Social Security. In fact, Social Security is paid for by the workers contributions which will continue even when the Trust Fund runs out of money. The Trust Fund is only a bridge to smooth the routine mismatches between income in and benefits out. The Baby Boom is the same thing, only the mismatch was large and long. Now there is another mismatch coming in the near future. This is due to a number of factors, the most important of which is that you will be living longer than your grandparents. Other factors include a lower than normal birthrate, and a lower than normal increase in real wages. These are temporary problems not fundamental to the nature and purpose of Social Security. This mismatch can easily be filled by raising the payroll tax about a dollar per week each year for a few years…while wages are projected to rise by about ten dollars per week per year.
CRFB’S “preliminary analysis”:
“Under the Trustees’ projections, Social Security faces a 75-year actuarial imbalance of 3.6 percent of taxable payroll, up from 3.4 percent in the 2022 report.”
me: again, most of what CRFB says here is strictly true, but the implications might be misleading. i will comment as me interlinear where i think clarification may be helpful.
me: note that this actuarial balance is what the tax increase would need to be if it were enacted all at once today. Note also that the workers’ share would amount to a tax increase of 1.8%. This would not be noticed by most people, except for the enemies of Social Security screaming about it as if it were a life changing burden.[remember, this is money you get back with interest. It is you saving an extra 2% of your income in order to be sure of having enough to live on when you get old or disabled
They also like to say, that the 1.8% would “only” see us through the next 75 years. After that “A substantial increase” would be needed. They call this “kicking the can down the road.” The “substantial” increase would be about another 1%. I think we can safely leave that for the people who will be living seventy five years from now to decide for themselves. And, if I may repeat . . . raising the payroll tax one tenth of one percent . . . about a dollar per week per year today, and for a few years only, would make Social Security solvent forever . . . no need to kick the can down the road.
CRFB:
“Under the Trustees’ official projections, Medicare HI faces a 75-year actuarial imbalance of 0.62 percent of taxable payroll, which is lower than the 0.70 shortfall estimated in the 2022 report. Under the Medicare Actuary’s illustrative alternative projections, the HI shortfall would be 1.46 percent of payroll.”
me: note again 0.62% of payroll is not a huge increase to pay for the medical care you may need when you get old. I don’t know how this would be distributed between workers, employers, and high income workers, but I would prefer it be paid by the workers themselves up to a reasonable cap, first to be fair, even to the rich, and to stop the emplyers from claiming it’s a “jobs killing tax.” i know there is some opposition to this from progressives who think that workers should never have to pay for their own needs. I would hope that workers could successfully demand a pay raise to cover both the needed increase in Social Security and in Medicare . . . so all those economists could rest who claim the employer would pay the workers the employer’s share if only they didn’t have to pay the tax.
i think the “alternative projections ”must be the Trustees’ “high cost” projections which they state are “not likely.”
CRFB:
“Overall Medicare costs have already grown from 2.2 percent of Gross Domestic Product (GDP) in 2000 to 3.7 percent of GDP today. The Trustees project costs will continue to grow to 6.0 percent of GDP by the late 2040s, and costs will remain at about that level thereafter.”
me: 6% of GDP is not a huge cost to provide for medical care for 25% of the population. This is less than that same population would pay through private insurance, and it is guaranteed. It won’t be taken away from them by sleight of hand “not covered” fine print, or the inability of older people to pay the much higher premiums charged to older people . . . who may no longer have the income to pay for them. “The young” need to have this feature explained to them. Paying a little more while they are young and have the money can save a lot of destitution and despair when they are old. They will pay into Medicare in today’s money at today’s prices, while taking out in tomorrow’s money at tomorrow’s prices, This is how pay-as-you-go works. It looks to some like “the young paying for the old.” But it is really the young paying for themselves in advance today and reaping about three times as much in “interest” later when they need it most.
CRFB mentions “alternative projections” again. Possible, but not likely. If “possible” becomes “likely” we can always adjust the amount we save via the payroll tax. Not fun, but then neither is destitution. And try to remember that all generations suffer from their own particular bad luck…depressions, inflation, wars, the draft We have no reason to cry “it’s so unfair” if we suffer some bad luck in our turn. But it is more likely that if we pay for retirement and health care in advance we will avoid the worst of the bad luck we might have had.
Don’t let them stampede you into letting them destroy your Social Security.
Here is a link to the CRFB press release.
“Anyone who pledges not to touch Social Security is ” [me] making a huge mistake. It is Congress’ job to touch SS. They did it yearly as the program was developing. Remember, it took until 1980 before anyone retired with a 40-year salary history with SS.
Congress is full of human beings, so it made mistakes along the way. But also, conditions change. One huge mistake came in 1978 when Congress passed a law defining “scheduled benefits” that were clearly going to take more revenue than SS had without defining some way to provide the revenue to match the schedule. Within 5 years SS reached crisis; the trust fund got down to 2.2 months.
Congress was forced to fix it. It still took two years by which time the TF was 1.8 months. The 1983 changes were a mixture of tax increases and benefit cuts, but they did not resolve the mismatch with the 1978 scheduled benefits. However, people were allowed to believe that SS was fixed forever and SS became the third rail. Bruce Webb was among those who believed SS just needed a growing economy. He was wrong, but Dale (and I) convinced him that a plan that included “triggers” to increase the payroll tax if a problem showed in the 10-year projections that are part of the annual report, would be sound.
Congress raised SS taxes for 50 years, but stopped in 1990. CRFB does not want Congress to do its job right and consider additional taxes. They sound right when they say “It’s time for our leaders to take their heads out of the sand and put them together to develop real and lasting solutions to save Social Security and Medicare”, but I would leave out “and lasting” because instead Congress needs to be able to continue to adjust to changing circumstances. Even the triggers in the NW Plan do not absolve them of that duty.
[me]
It’s time for our leaders to take their heads out of the sand and put them together to do their job of maintaining Social Security and Medicare.
Arne
really thank you. you are absolutely right. i did not know that part about your convincing Bruce. explains a lot.
Much of my interaction with Bruce was on Economist’s View before he started his own posts on Angry Bear. Your more detailed work here made mine unnecessary. His focus on Low Cost being a valid projection occurred because he did not realize that (even with the 2001 recession) he was seeing exceptional times for SS.
The flip side of Bruce’s optimism is seen in people who were pointing to the reduced projections in the annual reports after the recessions in 2010 and 2021. Neither view shows a proper understanding of the math behind the projections in the reports.
I think one of the advantages of the triggers in the NW Plan is that they are defined by a period which allows for adjustment beyond the time frame of recessional cycles.
Arne,
sounds like you know a thing or two. Want a job? We need someone who can explain this to Congress in a way they can’t pretend they didn’t hear.
serious typo:
the Trust Fund is paid for by the workers contributions which will continue even when the Trist Fund runs out of money.
i meant to say Social Security is paid for by the workers…
it’s not good to let the Trust Fund run dry, but even if it does, SS can go on forever paid for by the workers.
In 1968, the Gov reduced SS Withholding by one tenth of one percent for Social Security for both Employees and Employers. Alternatively, HI increased by one tenth of one percent for HI. Perhaps, we should have bit the bullet back then?
I do not feel in the mood of recalculating the amount of revenue lost.
Social Security and Medicare Tax Rates
1968?
good god, I was still a baby. what was going on then? i suspect it was a way to get some funding into HI (Medicare). and I suppose (do not know) that SS was sufficiently in the black. But they should have known (I am sure the actuaries did know) that that couldn’t last. Back then, I think, SS was still at the mercy of annual increases by Congress…which led to the looming disaster that led to the Reagan-O’Neil 1983 “reform.” Which worked out pretty well. The age raise was a bad idea, but Congress preferred that to an increase in taxes…even a dollar a week increase. Congress being filled with moron who can’t tell a mouse from an elephant, but the word “tax” inspires them with rage or at least rhetoric. It’s what keeps them in office.
Arne is right, We cannot manage ANYTHING by being committed to permanent solutions. We need to get it through our collective skulls that we need to pay for our daily bread at the price of our daily bread, and of course, our need for daily bread.
I like to think I have shown the way to do that…but all they have to do is say TAX! and the herd runs away straight into those cow friendly cattlc chutes.
free editorial
i am told that Congress has never been full of geniuses…Will Rogers said “there is no permanent criminal class in America…except Congess.” and the people laughed because they knew what he meant.
But I can’t look at today’s Congress without getting sick to my stomach. These people don’t even pretend to be decent or rational. There is no hope of appealing to their reason or decency. They have discovered that they can win elections by appealing to our most debased instincts. And after winning an election take steps to see they never lose another one by monkey wrenching the machinery.
Dale:
The 1 tenth of 1% decrease for each worker and customer, and if not decreased, would have more than likely would have cut the need now by half. That is a spread of over fifty years. Even though Medicare gets better prices than Commercial Healthcare, the issue is still healthcare costs and now Medicare Advantage swindling. The later is in the process of being fixed.
sounds true to me, but there is a little danger, too, in running the Trust Fund too high. We really do need to balance income with expected outgo over a shortish period of time [i think ten years is about right] so that with a sane congess we could have enough to meet expected needs…and this would be paid by the people who expect to get the benefits, and at the same time we would not be “increasing the national debt” by recklessly lending money TO congress.
as to Medicare fraud and abuse…again that is a crime committed by congress…which is weird: the congress commits the crime and then congress comlains about fraud and abuse.
take for example in another case: Congress votes to spend money, then votes to not pay for what they bought, citing “the deficit.”
these people are so evil only Dante could think of a place for them.
Dale:
There is never a deficit when the nation is MMT and every other country uses your currency globally.
run
very likely you know more than i do about this.
but here is my take: we use money to facilitate what i call half-reaction..after the technique in chemical reaction accounting in which electrons are the medium like money. a molecule (or ion) gives up an electron or two..this is half a reaction. another molecule picks up an electron, this is the other half. there is no need for the two molecules to be present at the same place and time. this is money’s contribution to “exchange”, an improvement on barter [which graeber says never happened. more likely was an oral or written promise to repay a debt. such promises becoming money by being exchangeable among people not party to the original transaction.] this worked well enough until societies got big enough that no one knew the ultimate guarantor of the debt. then gold, then paper, then written promises (bonds, checks, data entries..)
still works fine, but persons, companies, and ultimately countries need a way of keep track of their debts (so they can pay them) and a modern country especially needs a way to keep track in order to balance the money supply.
MMT seems to ignore this. we can print money so who cares about debt? ultimately we have to. at least keep track of it. so when the time comes and inflation or lack of resources becomes the limiter..our record of debt helps us understand what we need to do, as well as where the magical money has gone…so that there is some justice in who pays for what. MMT also loses sight of the fact that the same people making decisions about government spending today would be the same people making decisions under MMT. you can’t just throw money in the street . not even magic money. so when congress worries about the det they are worried about something with real consequenes.. they just lie about what and when those consequences are pending, and what needs to be done about it. i don’t see MMT fixing that at all.
there is a federal deficit and it matters. how important it is and what we decide to do (guns or butter) about it matters. Social Securit has an “actuarial deficit” in it’s own accounts. and we can’t just print money to fix it. we need to decide…if we are sane…how much we want to spend on current wants (needs) and how much we want (need) to save for the future. money as such can’t be “saved”…that is the goods and services they would buy today are not bought, and if the money is not used for some other purpose it effectively just disappears. all of finance is a set of “instruments” to take unused money now and use it now for something that can be exchanged in the future and “turned into money” by being used to buy things etc.
anyway, long dull and possibly wrong story just to get us warmed up to the idea of asking what money and debt really are.
i don’t know how all of this fits into “global currency” but i suspect it is much the same. the dollars need to be exchangeable for goods and services…not necessarily “bought in the USA” but more like fractional reserve banking….where money can be created and lent as long as you have a reasonable expectation of getting it back as the result of some “work” or addition to the stock of goods and services being created over the same time. that money can lose or gain value but it depends on the stock of goods etc being created. get that out of whack and bad things start to happen.
In 1968 SS was still only 30 years old. With a TF ratio of over 1, Congress thought it was in good shape. But it was not yet through its startup for a Pay-As-You-Go program. With no computer spreadsheets understanding that the ratio should be expected to continue to fall for another decade was too much math. It did not go below 1 until 1972, but the 70s were a hard decade when many things started changing. Stagflation. The end of new workers from the Baby Boom. The coming end of women coming into the workforce. …
Before stagflation there was inflation which Volcker set out to destroy Labor to save the nation. My raises were double digits on a salary in the mid to upper teens. The ups and downs played havoc on Labor inputs to programs. In 1968, the population was 195 million and by 2006 it was 300 million. By 2075, the population will be ~375 million.
Replacement rate today is ~1.6. We will be dependent upon immigration then too.
I have another post sitting in draft, which I think might explain more on outcomes. Not that we do not need to do something, we do need to react again. The question is how much. Dale’s solution is minimalistic although some argue and deride the solution and offer up other thoughts.
Why make things complex?
Now the time is ripe for Bruce to come bay and call us all boneheads . . . I went by his site and it was locked down. It used to be open.
You are right on not having Excel. We did have MRP. Population Growth
Arne
yes, mostly. i am not sure that pay as you go wasn’t working already. even at first the contributions of the earliest workers was enough to pay the benefits of early retirees..that 40:1 ratio the enemies of SS always misrepresent. And yes, the early workers paid the early retirees, but it is still true that they were paying for their own retirement at the same time. The latter description is a better description of the way SS is designed to work. The early retirees were benfiiaries of the insurance aspect ot Social Security..technically they head notpaid enough to cover their own benefits, but they had paid for the insurance…the “event” in that case might be considered the Great Depression, and the “paid for” might be grandfathered in as what those workers had paid in taxes for general welfare, paying for their own parents needs and getting “cerdit” for the destrucion of their own savings because of the depression. I don’t think I am stretching any logic here. just trying to put things into perspective. in any enterprise there are start up costs, and startup profits to be made by early investors.
Social Security calls the Trust Fund Ratio you are calling “1” “100” as in one hundred percent of the next year’s expected cost of benefits.
It depends on what you mean by “working already.” The 1971 amendments altered the tax rates for 1987. Congress was doing its job of planning ahead, but they were not prepared for what happened in the 70s. If you look up the estimates for fertility and mortality in the 1970 annual report (which went out 30 years) you see they were too optimistic. Congress was still willing to make adjustments, so it was working from that point of view, but they had not hit on a system for setting payable benefit levels, so it was not working from a different point of view.
https://www.ssa.gov/history/reports/crsleghist2.html
arne
yes, it depends on what i mean. at this point i agree with run at 1:25…i am too lazy to open this can of worms,
“The 1 tenth of 1% decrease for each worker and customer, and if not decreased, would have more than likely would have cut the need now by half. “
Congress increased future rates in most sessions from 1969 though 1983, often overwriting prior plans. The table linked to does not indicate the plan that existed in 1968. They should have made additional changes after 1984, but could never agree as long as there was no crisis and so many who would rather kill it.
Arne:
I am too lazy to do the numbers. We are already looking at reality and what it is. If we had kept the 1 tenth of 1%, it would have decreased the deficit which we already know what it (deficit) is.
edit: To fjnd out how much, we would have to go year by year to calculate a gain. We are talking 50+ years of gain.
It 1968 heats you up, the whole decade of the 1940s should incinerate you.
https://www.ssa.gov/policy/docs/ssb/v67n4/67n4p51.html
Table 1.Projected versus actual Social Security tax rates (employee and employer rates combined)
Calendar year
1935 law
1939 law
Actual rates
1937
2.0
2.0
2.0
1938
2.0
2.0
2.0
1939
2.0
2.0
2.0
1940
3.0
2.0
2.0
1941
3.0
2.0
2.0
1942
3.0
2.0
2.0
1943
4.0
4.0
2.0
1944
4.0
4.0
2.0
1945
4.0
4.0
2.0
1946
5.0
5.0
2.0
1947
5.0
5.0
2.0
1948
5.0
5.0
2.0
1949
6.0
6.0
2.0
1950
6.0
6.0
3.0
Follow the link to see the table in proper format.
Arne:
Not quite the same in that we had an actual rate which was reduced. I do see your point in the “what if” these numbers were actually met? Short-sightedness on their part.
Arne
thank you. i did not know this. i am incinerated.
i don’t think it was short sighted. i think it was the hate-taxes boys.
“Not the same in that we had an acrual number which was reduced.”
You are making a distinction between the accrual of a tax decreased and the accrual of a tax not increased, even though not increasing the tax literally required an act of Congress?
Arne:
I believe you set up the comparison by showing actual (and low) tax when compared to what the law states (a much higher tax). All I said was the actual tax in 68 was decreased and what would the impact be if it had not been decreased. You are doing a comparison between an actual tax which is much lower and something that never happened (an increase).
The columns do say 1935 Law and 1939 Law. Except and it appears the actual tax was 2% even though the Law stated higher..
run
don’t get into an argument over this. i have trouble following it. and really don’t think it’s worth the bother. and just muddies the waters.
i really had not noticed the failure of congress to pass the increases mandated (?) by the earlier laws and i thank arne for pointing it out. but i am afraid congress gets to do whatever it wants, short of shooting up fifth street. they are working on a way to shoot up Social Security without being caught.
“i don’t think it was short sighted. i think it was the hate-taxes boys.”
This topic came up on Economist’s View because of a misreading of Chairman Altmeyer’s testimony to Congress that without the increases “SS funding was unsustainable”. You can imagine how that was used out of context. As the 2007 bulletin I linked above indicates, FDR wanted a SS to have a substantial reserve. The 1939 amendments (to the 1935 Act) were what changed it to PAYGO. Even then they imagined a 3-year reserve. (I don’t know when the current 1-year reserve became the standard.)
The bulletin also says
In 1939 most jobs held by blacks were exempt from SS. Expanding SS had ramifications beyond just taxes.
Thanks Arne.
I am getting old and crabby [you thought i was crabby before?]
what’s interesting about this history is that the enemies of SS put a spoke in the wheels and then complained about the results. I knew about some of that but don’t have the energy to be really interested in the history. what it is now, and what we can do to keep it working as meaningful insurance for the future is where I think I have something to say.
Arne
don’t misunderstand me. I don’t always understand myself at first.
I am grateful for your contribution on this. It is more important that i thought: it sheds light on Congress’ decision making re SS. I hope you can write more about it. I won’t have time to really think about it, and I hate to write when I have not thought.
speaking of which
CRFB brought out its “finally” (not preliminary) analysis of the Trustees Report. They seem to be worried about the “insolvency” of Medicare, but don’t seem to be concerned about Medicare Advantage’ (a private company) fraud overcharging Medicare which is contributing to that insolvency. I’ll try to have more to say about CRFB analysis, as well as the Trustees Report itself.
its, of course, not it’s.