Monday, June 3, 2013

My next stop: Vegas.

A friend emails that, last May, I predicted the next Social Security Trustees Report would show few changes relative to the 2012 edition. The Trustees released their latest Report on Friday and – lo and behold! – it seems I was right.

The Social Security trust fund’s exhaustion date stays unchanged at 2033. Social Security’s 75-year deficit increased from 2.67 to 2.72 percent of payroll, a small change that’s explainable just by the passage of time: each year, a new 75th year is added to the projections and that 75th year inevitably involves deficits, making the whole projection slightly worse. A shortfall of 2.72 percent of payroll means that a tax increase of 2.72 percentage points, from 12.4 percent of wages to 15.12, would make the system solvent for exactly 75 years, but not beyond.

The “infinite horizon” shortfall increased slightly, from 3.9 to 4.0 percent of wages. That’s the payroll tax increase needed not just to keep the system solvent through 75 years but thereafter as well. This is an important figure because the 75-year figure is premised on a lot of people paying taxes over the next 75 years but not receiving full benefits if they’re retired after the 75th year.

Social Security faced insolvency last year and it faces insolvency this year. The only way we’ll not say the same thing a year from now is if Congress and President Obama step in and do something about it.

1 comment:

WilliamLarsen said...

It should come as no surprise that I do not believe the Trustee report. I think the date will move forward well before 2033.

"The “infinite horizon” shortfall increased slightly, from 3.9 to 4.0 percent of wages. "

I am unable to reproduce the 3.0 to 4.0%. Simple math states that with a worker to beneficiary ratio reaching equilibrium at 2.2 will require a minimum of 5.3% or 15.9% versus the current 10.6% tax rate for SS-OASI.

When looking SS-DI the payroll tax would have to rise from 1.8% to 2.7%.

I think the Trustees have low balled the values by assuming that zero population growth will change. For their numbers to be correct, births per woman would have to be considerably higher than the 2.1 currently.

Junk in equals junk out.