Monday, June 27, 2016

Mercatus’s Fichtner, Warshawsky on Social Security Trustees Report

By Mark J. Warshawsky, Jason J. Fichtner |

Jun 22, 2016

The Social Security annual report, released today, shows that while the projected insolvency date for the combined Old Age, Survivor, and Disability Insurance (OASDI) trust funds remains unchanged at 2034, another year has been lost to inaction. The Obama administration trustees have called for legislators to address the shortfall "as soon as possible."

Mercatus Center senior research fellow Mark Warshawsky, a member of the Social Security Advisory Board from 2006 through 2012, said the following in response to the report:

The insolvency date for the overall program has not changed from last year, that is, it is now one year closer.  With every year that passes, without fundamental reform, we are losing opportunities to responsibly put the program on a sound financial footing and for it to reflect the profound economic changes that have taken place since the program was last reformed in 1983.

The unfunded obligation of the program, whether calculated over 75 years or over an even longer horizon, increased more this year than was expected. This is due to a realistic lowering by the Trustees of the future interest rate assumed. Further changes to reflect the best informed views on current and projected economic and demographic conditions, including for future mortality trends—in particular to better consider recommendations by the 2015 technical panel of external experts—no doubt are waiting on the participation of Public Trustees, whose positions are currently vacant. 

It is unrealistic to simultaneously "ensure solvency for future generations of Americans" while at the same time to "expand and finance improved Social Security benefits" as the Administration is recommending.

Mercatus Center senior research fellow Jason Fichtner, former deputy commissioner and chief economist of the Social Security Administration, notes:

I fear the lack of change in the depletion date for Social Security’s combined trust funds will give lawmakers and the public a false sense that the program’s financial problems are less than urgent—that reform can continue to be put off. Such a misunderstanding would lead to grave consequences for beneficiaries of both the disability and retirement programs.

Although this report suffered from the lack of oversight by public trustees, it is notable that the administration trustees see the looming problem essentially unchanged.

The recent last-minute patch of the financial problems of the DI trust fund should be a wake-up call for those concerned with the OASI retirement trust fund—delaying meaningful reforms only limits the options available.

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