Thursday, June 13, 2013

A guide to the 2013 Social Security Trustees Report

From public trustee Chuck Blahous, over at e21. Including one chart I particularly like, for those who downplay the need for action.  Check out the whole article.


WilliamLarsen said...

“The first is demographic; the number of beneficiaries is growing rapidly relative to the number of taxpaying workers.”

This was known as far back as 1935 when the social security act was passed. It became evident in 1950 when the payroll tax and base were increased by 50%. Since its inception, OASI has been making only band aid patches to the root cause since its inception. Now the full effect of decreasing birth rates per woman which began well over 150 years ago is now reaching achieving equilibrium at an increasing rate.

“Second, real per-capita program payments are rising under current benefit formulas.”

It would have been nice to see the increase in the “, real per-capita program payments” since 1940. This would actually show that benefits grew at a much higher rate from 1940 to 1977. The reason for the plateau in 2010 2012 is because of the economy. Future years are based on the “ASSUMPTION” of renewed growth in wages. Again this is nothing new. All this information was on the SSA website and available prior to the internet by requesting it (I did this).

“And third, the program is financed on a pay-as-you-go basis, meaning that each generation’s benefits are paid for the most part from the tax contributions of the following generation, rather than saving those contributions to finance future payments. Such a financing method is very sensitive to changes in the ratio of taxpaying workers to recipient beneficiaries.”

Again this is not new. A. J. Altmeyer clearly identified in 1943 that social security was broke, that hit has a $16.5 Billion unfunded liability and that the payroll tax should be raised to as much as 6% if not more immediately. What would $16.5 Billion in 1943 be worth today at the US Treasury Rate in each year since 1943?

“If any of these three factors were absent we would not now face a shortfall”

This is a pretty arrogant statement. Had congress increased the payroll tax to 8% in 1943 we would still have a problem due to the legacy debt. If you could get woman to have 5.3 Babies each during their life time, we would have an overcrowding and resource problem.

If wages were not growing and were stagnant, the problem would not go away, but would be reduced.

“We are running out of time to fix Social Security’s finances without abandoning its historical financing structure.”

Sorry to be the bearer of bad news, but we ran out of time the date the Social Security Act was signed. When you look at the trust fund and were to eliminate current payroll taxes at what beneficiary age would SSA still be able to pay OASI Benefits? Would it be able to pay all benefit to those over age 85? This is 2013 and OASI is projected to run out around 2033, just 20 years from now.

How do we set aside enough resources to pay benefits to those currently retired ages 65 to 85? We are talking $9 trillion in the bank today. Now we should understand that the earlier one begins to save, the less as a percent of income needs to save to reach their retirement goal. With each year you wait to save, the amount increases. Social Security as a whole is like the individual who is now 62 years of age and wants to retire at age 67 with 42% of their life time indexed wages. Sorry folks, this would require a payroll tax of 133.46%.

“For perspective, consider that the current Social Security shortfall is now much larger than the one addressed in 1983. To resolve the 1983 crisis, legislators had to do many difficult things, including: delay COLAs by six months, expose benefits to taxation for the first time, bring newly hired federal employees into the system, raise the retirement age, and accelerate a previously-enacted increase in the payroll tax.”

The fix of 1983 was projected to PATCH the problem until 2064. Is this what we want again?

JoeTheEconomist said...

Well done Bill.

The Trustees said that the largest reason for the increase in the unfunded liabilities over the next 75 years was.... changing the definition of solvency by a year.