Thursday, January 29, 2015

Social Security Trust Funds to Run Out in 2029?

That’s what Jed Graham of Investors Business Daily crunches out of the latest budget numbers from the CBO. Says Jed:

CBO's updated financial path for Social Security runs through fiscal 2025, in which year the program's benefits are projected to exceed its tax revenues by $359 billion, up from a $73 billion shortfall in 2014, as the $2.8 trillion trust fund shrinks to $1.6 trillion.

Plugging in CBO's long-term Social Security projections detailed in December for 2026 and later leaves little doubt that its estimates now put the trust fund's depletion in the fall of 2029. A similar analysis correctly predicted that CBO would move up the trust fund's end date by two years (to 2031) in 2013.

Click here to read the whole story.


WilliamLarsen said...

The fallacy of using cash flow accounting is coming home to roost. In 1950 the had an opportunity while just slightly more than half the work force was covered by Social Security to take A. J. Altmeyer's reports of 1943 and 1944 to heart. However, they did not and fixed that problem by creating a second tier social security by adding those who were not covered in 1937. When this still proved insufficient in 1970, they began increasing the tax and base until 1983 when the Social Security OASI trust fund was exhausted and borrowed $11 Billion from Medicare and SS-DI trust funds (paid back over three years).

The Big Greenspan Fix of 1983 singed by Reagan was only a temporary patch, just like the numerious patches before it.

2029 is just 14 years away. Worker Participation rate is down 16% and is doubtful to recover any time soon. At the same time even if boomers stop working, they have maxed out much of any Social Security Benefits they have under current 1977 benefit formula (even if they work until age 66, their benefit will not be much more 1-5% tops, they have worked 35 years).

At this level of worker participation rates the 75% payable benefit looks like it is 5% too high. 70% if not a bit lower in 2030 may be more reasonable. This of course will cease COLA benefits sometime in 2027-2028. After 2030, payable benefits will fall 0.6% a year for about 35 years.

Who wants to save social security?

JoeTheEconomist said...

There has been a gap between CBO and SSA on the Trust Fund projections. The larger problem is whether the Trust Fund turns cash flow negative in 2017 or 2020.

It is one thing to have a 3 year gap 18 years from now. Here we have a 3 year gap starting in 2017.

Andrew G. Biggs said...

But OASDI went cash flow negative in (I think) 2010, so they're both showing deficits now.

JoeTheEconomist said...

I thought that the OASDI went cashflow negative on an operating basis (payroll taxes) in 2010. The income from the interest I thought made the system as a whole remained cashflow positive through 2017 or 2020 depending upon the source.

I do not think of interest as an operating revenue. That may be a little picky, but interest still covers the difference between revenue and expense. Is that correct?

Andrew G. Biggs said...

My reference was to tax income relative to benefits, excluding interest payments.