Reader and poster Coberly updating Angry Bear readers on recent Social Security findings in the 2020 report. Reader Bruce Krasting had alerted Angry Bear to the publication by the Social Security Trustees of a “revised baseline” that includes effects of the Covid recession on their projections otherwise from the 2020 Trustees Report. “Updated Baseline for Actuarial Status of the OASI and DI Trust Funds, Reflecting Pandemic and
Recession Effects“

The Trustees have better information than I have and assumed a lower unemployment rate with effects of the recession lasting over several years, but returning to “normal” by the year 2029.  Their new projections bring the Trust Fund exhaustion date one year closer, but the ultimate 75 year deficit remains at about 4% of payroll.

Using their revised baseline, and attendant projected changes in some of the parameters they use for their projections, I was able to replicate their calculations, giving me confidence that my own findings regarding necessary payroll tax changes are consistent with their projections.

The necessary payroll tax changes amount to an average tax increase of less than one tenth of one percent (each) per year.  This is different from my pre-covid findings only in that the tax increases would need to be a bit larger in the first years than previously estimated.

by Dale Coberly; CORONA VIRUS AND SOCIAL SECURITY, ANOTHER GRAND BARGAIN?

Republicans are showing what they are made of. After claiming that the Corona Virus was not serious, or was well contained, or was Democrat fake news; they are now admitting it is serious and calling it a Chinese virus.

Fox News explained to a reporter they don’t expect “turning the ship around” to cause any problem with their viewers. They did not say that is because their viewers will believe anything they tell them to believe. Nor did they tell the reason for their turnaround of their seeing how to make money out of the pandemic. Even more so, they have seen how to use it to destroy Social Security.

These guys are akin to inviting your boss to dinner and noticing he couldn’t take his eyes off of your teenage daughter. Well, you think, at least he has kept his hands off her. Then your daughter comes over and says, ”Dad, Mr Peterson has been telling me about his house on the beach. It sounds so cool. And guess what, he said I could come and spend the weekend there if I want to. Can I? Can I? Please.”

So Trump has said he will spend some money fighting the epidemic, but he wants to get the money from Social Security. He wants a “payroll tax holiday.” The government won’t collect the payroll tax, and people can keep the money and spend it to help stimulate the economy.

(Dan here….)  Via the New York Times comes an article on the Social Security shortfall.  No explanations given for what the shortfall context is, and not till the end was a fix suggested.  In comments calling SS a ponzi scheme (with no explanation) was common, or with the fix mostly was about lifting the cap.  Only one commenter referred readers to a Bruce Bartlett article from 2013 on the matter,

From an e-mail by Dale Coberly

Forgive me,  I have studied this problem and may actually know what I am talking about.

All we have to do is pay an extra dollar per week per person per year.  After next year It will be more like a dollar and ten cents.  And if we wait another year it will be about a dollar and twenty cents for the first few years,  then a great deal less than a dollar per week on average. This would keep Social Security solvent essentially forever.  The Deputy Chief Actuary at Social Security agrees that this is true.

This would mean people are paying more, but not a lot more, for their Social Security.  That is they would be setting aside enough money through Social Security to save enough to live on when they will no longer be able to work.  Don’t fool yourself:  working longer is not going to be possible for at least half the population.  And since they will have paid for it themselves, there is no reason they should not be able to retire if they want to even if they “could” work longer.

The Social Security Trustees Report says that about a one and a half percent (about fifteen dollars per week) one time “immediate and permanent” increase  would keep SS solvent for the next seventy five years.This would not be a real burden, or even noticeable once people got over their overreaction to the increase.  Even the about twenty dollars per week that would come in 2035 or so if we wait to the last minute will not be a real burden.  Wages will have risen by about two hundred dollars per week by then.  Again, no no one would think twice about it if it weren’t for the Big Liars making it sound like some kind of tragedy:  “You are going to have to put aside an extra twenty dollars per week, out of your two hundred dollar raise, in order to have enough to live on for the extra two to four years you will expect to live.” [Dollar amounts are in present terms.  SS pay as you go financing automatically takes care of inflation and real interest.]

The thing is they keep talking about it as if “we” — that is “the government”– can’t afford it.    But we — that is each of us — certainly can afford it.

But “they” want to talk about it as if “the government” was going to have to come up with trillions of dollars.  And they call it “socialism.”  Meanwhile the “progressives”  want to make it socialism by “making the rich pay” for it.

Social Security was carefully designed to NOT be welfare. It’s just the worker saving enough of his own money to pay for his own food and shelter when he will be too old to work, and insuring himself against the possibility that otherwise he might not be able to save enough. The government does not pay for any of this. The “rich” do not pay for more than they will get back with reasonable interest, including its insurance value.

Since you have been lied to intensively for at least the last thirty years,  you will not easily understand this or believe it. But it can be proven with attention to real math and real facts. There is no hope the people will understand it if no one tells them. The question is are you willing to do the work?

by Dale Coberly

KOTLICOFF ON THE HILL

with Social Security

Larry Kotlikoff wrote an editorial that appeared May 14 in “The Hill:”  https://thehill.com/opinion/finance/443465-social-security-just-ran-a-9-trillion-deficit-and-nobody-noticed

This is the amount of money you (we) will have to pay whether we have SS or not. It is the amount that will be needed to keep old people from living (dying) in the streets and eating out of garbage cans (this means YOU when you can no longer work). This can come from personal savings, redirecting investment profits, real government taxes (that you don’t get back), or living with your son-in-law. What Social Security does is let you pay for it yourself while you are still working. Protects your money from inflation. Pays interest that keeps up with the standard of living, and insures you against the accidents that all cash is heir to.

 the best way to address retirement security is to continue reforming 401(k) plans and to expand Social Security—but only for low-income workers. Middle-class workers are generally doing reasonably well, and certainly as well as they did in the past. We don’t need a massive and expensive expansion of Social Security for everyone, but we do need to make Social Security more generous for the bottom quarter or so of the population that’s doing poorly in both relative and absolute terms. This is something that every liberal ought to support, and hopefully this is the bandwagon that President Obama in now on.

Alan Greenspan, the former chairman of the Federal Reserve, weighed in last week on one of the pressing issues facing the incoming Trump administration and the country — slow economic growth. Greenspan’s explanation is novel and bound to be controversial. To preview: He blames the welfare state and overall uncertainty for the slowdown. …

By scouring economic statistics, Greenspan thinks he’s discovered heretofore hidden relationships that explain weak productivity growth.

by Dale Coberly

SOCIAL SECURITY TRUSTEES REPORT

An Overview of the Overview

The 2016 Trustees Report  didn’t have much new to say, so the usual commentators were free to say what they have always said, which is mostly wrong.

A careful reading of just the Overview (p 2 to 25 of the Report) will help us correct the dangerous misunderstandings that have been created by commenters who either don’t understand it themselves or just hope that you won’t understand what the Report actually says.

Let us begin with the Trustees own conclusion (p 25):

“With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”

“Can continue… to protect… future generations.” But there has been no informed discussion. no creative thinking, and no timely legislation. Instead, the politicians and the press keep repeating hysterical distortions to lead people to believe that Social Security faces a huge debt, a “looming crisis,” that, so far from “protecting future generations” will impose “crushing burdens on the young.”

The Trustees indeed report [page 5] an “actuarial deficit” of 11 trillion dollars, a number  the “non partisan experts” use to scare people who aren’t used to thinking with numbers.  Thinking with numbers leads easily to an approximation:  Eleven trillion dollars divided by 100 million workers is about 110 thousand dollars per worker.  Dividing that by 75 years yields about 1500 dollars per year per worker.  And to put that into terms workers are familiar with, that would be about twenty-eight dollars per week for an average worker (who is making about a thousand dollars per week).

Is this a huge burden?  The $ 28  does not go into a government black hole:  it comes back to the worker when he will need it most, with enough effective interest (automatically created by pay as you go financing in a growing economy) to provide for his basic needs when he is too old to work.   This is a reasonable cost for the benefit.

The Trustees don’t leave the reader having to trust my approximation. They state quite clearly [page 5] that the $ 11 Trillion Dollar actuarial deficit would require an “immediate and permanent” tax increase of 2.66 per cent. That 2.66% would be 27 dollars per week for a worker making  one thousand dollars per week.

By law the Annual Social Security Report is due by April 1. But as in every year for the last decade this deadline was missed and of course without explanation or excuse, leaving Social Security hobbyists like me whimpering. Luckily there are not a lot of SocSec fanboys and fangirls. It might be a club of half a dozen. Anyway—–.

So while I wait for my annual fix of Tables and Figures I want to return again to the very odd and counterintuitive relations between Social Security and Public Debt. Because it turns out that little is what it seems to be, at least if you use ordinary language. For example what does it mean to say that Social Security is ‘solvent’? Well one definition would be ‘healthy and able to pay out all scheduled benefits for the conceivable future’ and that is true enough. But what does that look like in relation to the rest of Federal finance and debt?

‘Solvency’ in Social Security terms has a number of metrics: ‘sustainable solvency’, ‘short term actuarial balance’, ‘long term actuarial balance’, ‘actuarial balance over the infinite future horizon’ but all draw on the same basic concept. Social Security is ‘solvent’ in any given year if it has cash convertible assets in its Trust Fund equal to one year of projected next year cost. This is called the Trust Fund Ratio and is expressed simply enough as 100% = TF Ratio of 100. If the TF Ratio dips below 100 Social Security can be called ‘insolvent’ and indeed according the the various metrics referenced above if it is projected to go below 100 in any year of a set of future years it could also be deemed ‘insolvent’. And this true even if the reserve was such that full benefits could be paid out for years after that point of ‘insolvency’. Which explains why Social Security can have $2.8 trillion in the ‘bank’ and be projected to be able to pay full benefits until 2034 and still be considered a ‘crisis’ that needs immediate attention. But putting that last aside for now lets get back to the nuts, bolts and accounting. Under the fold.

The argument behind MJ.ABW in relation to Social Security (More Jobs. At Better Wages) by real economist and mentor Dean Baker of CEPR. Also an implicit underpinning of the Northwest Plan for a Real Social Security Fix. The whole thing is short if you want to read through: An Aging Society Is No Problem When Wages Rise

The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.

CBO’s 2015 Long-Term Projections for Social Security: Additional Information

The Social Security Policy Options, 2015 was not the only report released by CBO yesterday. You have this one filling out the details in the Long-Term Budget Outlook

Haven’t read this one either. So you all get first shot at framing the debate! Go get ’em Tigers!