Thursday, February 18, 2016

Tanner: The GOP and Social Security

The Cato Institute’s Mike Tanner writes about Republicans and Social Security reform in National Review:

Social Security’s unfunded liabilities approach $26 trillion. That’s not because of waste or administrative glitches; it’s because of shifting demographics. We are living longer and having fewer babies. In 1950 there were 16.5 workers paying into the system for every retiree taking benefits out. Today there are just under three. By the time our children retire, there will barely be two.

The idea that we can save Social Security without making any changes to the system — without anyone getting less or paying more — is part and parcel of the budget fantasies that Republicans have been indulging this campaign season.

Click here to read the whole article.


JoeTheEconomist said...


I have to call baloney on this one. The Trustees point out that time is the killer for Social Security, not historical look-backs to the demographics of the 1950s. Shifting the calendar year from 2013 to 2014 cost SS 900 billion. The people who retired in 2014 will live about 18 days longer than those who retired in 2013.

Andrew G. Biggs said...

If you didn't have changing demographics, time wouldn't matter.

And you're forgetting fertility: relatively small changes in fertility have a big effect on system financing.

WilliamLarsen said...

Total hog wash! Demographic changes? The SSA records the date of birth for each SSN issued. They know how many babies are born. The birth rate has been declining for a hundred years. The statistical Summary of the United States which dates back to 1900 lists the births by year and live births one year later. Looking through these informational books provided me with the information to build my first population file. If I could determine a trend then clearly anyone who took the time in 1935 had 30 books to look at and see the trend in lower birth rates. In 1961 there was a large drop -the pill was introduced. Another large drop 1973 - roe v wade.

Tanner is no better than the BS Army!

As for living longer that is so full of BS, where do I start? The SSA life cohort tables identify in ten year increments (decade reports) the life expectancy of the cohort at ages 0 through 119

If this was a problem the first place to have seen the increase was for those born from 1900 to 1930 where the rate of change in life expectancy showed up the most. In fact the SSA states increased life expectancy is not the cause.

Social Security Administration’s Web Site,

(Increases in life expectancy are a factor in the long-range financing of Social Security; but other factors, such as the sheer size of the "baby boom" generation, and the relative proportion of workers to beneficiaries, are larger determinants of Social Security's future financial condition.)

The root cause of the problem is that politicians through some concepts out there and it became law. There was no mathematical calculation done to balance revenues with expenditures or to attempt to balance payroll taxes with benefits. Instead benefits were based on wages subjected to the wage base. If the tax is zero, it would not change the initial OASI benefit one penny.

There was no design. A. J. Altmeyer stated in 1943 and 1944, just 3-4 years after benefits were begun that the program was underfunded to the tune of $16.5 Billion.

He also stated that if the tax was not immediately raised to 6-7% that future generations would pay far more their benefits than they were worth. This was in 1943.

AS for the 16.5 workers per beneficiary, again this is total BS.

Robert Ball, Commissioner of Social Security, 1962 and 1973,Wrote June 2005
“When Social Security began, benefits for those nearing retirement age were much higher than could have been paid for by the contributions of those workers and their employers. This was done so that the program could begin paying meaningful benefits even though workers nearing retirement would have only a short time to contribute.”

“Instead, the impression is left that the program was sound only when 16 paid in for every one taking out. Thus, of course, when the ratio changed to 3.3 to 1, the program became unsustainable.”

“They ignore the fact that in 1950 only about 15 percent of the elderly were eligible for benefits and that it was expected by all who were acquainted with the program that
the ratio would, of course, change dramatically as a greater proportion of the elderly became beneficiaries.”

“What in fact happened is that when just about all the elderly first became eligible for Social Security benefits, about 1975, the ratio was 3.3 contributors to each
beneficiary and the ratio has stayed that way for the past 30 years. As the baby boom reaches retirement age, as the administration says, the ratio is expected to drop for the long run to 2.0 or 1.9 workers to each retiree. But that is the size of the problem - a drop from 3.3 to 2 workers per retiree."

If you were to look at total workers to total age 65 and over you find the ratio closer to 6 in 1937.

JoeTheEconomist said...

Andrew if I do not share your concern demographics it is because the system hit insolvency in 1983 pretty much at the peak of the Boomers earning cycle. Demographics may determine the time of the crash, but it is not a driver. Time is the beast. You can't sell dollars for dimes. We are shifting $0.90 through time generation to generation. As every day passes, the cost (which includes accrued interest) grows. That accrual by itself is now larger than the system entire revenue base.

If demographics improve all you are doing is postponing the problem. Every dollar in creates an obligation of a dollar out in the future. When that future arrives, you are just as screwed unless demographics improve again or you raise taxes. this is a never ending cycle that ends with the program consuming your entire revenue base. Read the Altmeyer piece, it changed my view on the system.

WilliamLarsen said...


Neither demographics nor increased life expectancy are the cause. Demographics is a given - it changes it is not new. Increased life expectancy just did not happen. The trend has continued since the beginning of time.

The root cause behind SS-OASI's failure is purely design. They did not attempt to design a program that was remotely actuarially sound. They then increased benefits and extended benefits without revisiting the design criteria.

The system of Old-Age Insurance created by Title II of the Act provided benefits to individuals who were age 65 or older if they were “insured” by the program. Individuals were insured if they had worked at least 5 years in jobs covered by the program, and earned total wages of at least $2,000 in those jobs, before they reached age 65. The amount of the benefit was related to the amount of total wages covered by the program, but the formula was weighted to give a greater return, on payroll taxes paid, to low-wage earners.

No direct method of financing old-age benefits was provided in Title II. Rather, Title VIII of the Act levied payroll taxes on the types of employment that provided eligibility for benefits under Title II. Title VIII required that, beginning in 1937, employees covered by the program and their employers each pay a tax of 1% (rising gradually to 3% in 1949 and thereafter) on the employee’s first $3,000 of wages. It was hoped that separating the financing from the benefit provisions would help the system withstand early charges that the federal government did not have the constitutional power to levy taxes to pay benefits to individuals.

The 1939 amendments shifted the emphasis of the Old-Age Insurance program from protection of the individual worker to protection of the family. More emphasis was placed on the goal of providing socially adequate benefit payments, and somewhat less emphasis was placed on the principle of individual equity (amount of benefits linked to the amount of taxes paid).

The amount of the benefit was 40% of the first $50 of the AMW plus 10% of the next $200; this amount was then increased by 1% for each year with at least $200 in covered wages.

The 1950 amendments substantially expanded the scope of the Old-Age and Survivors Insurance (OASI) program by extending coverage to about 10 million additional workers. The amendments also greatly increased benefit levels, liberalized eligibility requirements, and increased the maximum amount of covered earnings considered for both benefit and tax purposes the “earnings base”).

WilliamLarsen said...

To think that any government agency, politician or entity would create a program that based a major part of solvency or success on having a minimum of 5.7 babies per woman is just plain dumb. Then to place blame on demographic changes is no less than blaming women for not having enough babies.

Tanner has missed the big picture here big time. This does not reflect well on CATO's credibility at all.

How Low Can You Go?