Over at the National Academy of Social Insurance’s blog.
The Social Security system is in grave financial trouble — in worse financial shape now than in 1983 when the Greenspan Commission "fixed" the system's finances. It’s also in worse shape than Detroit’s two pension systems, taken together. According to the Social Security Trustees (Table IV.B6, “Unfunded OASDI Obligations for 1935 (Program Inception) Through the Infinite Horizon, Based on Intermediate Assumptions,” in the 2013 Trustees Report), the system is 32% underfunded, notwithstanding its $2.7 trillion Trust Fund.
In short, an immediate and permanent 32% hike in the Social Security payroll tax rate (from 12.4% to 16.4%, forever) is needed to pay the existing benefits. Alternatively, an immediate and permanent 23% cut in all OASDI benefits would provide long-term solvency.
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1 comment:
I have a working computer model of social security created in 1984 after the big :Fix." In 1984 I looked at cohort population, the 1977 OASI benefit formula, wage growth indexing to determine each cohorts avg OASI benefit and more. The Social Security OASI program is based on some basic mathematics; Each person's OASI benefit is based on wages subjected to SS and has nothing to do with taxes paid. As wage growth increases, so do future benefits at the same EXACT RATE. This means that it is very easy to project each cohorts cost. In addition since the OASI tax is also known, it is very easy and precise to calculate the amount of revenue a cohort will pay. Life expectancy is changing very slowly less than 0.25% per cohort which for a cohorts 20-21 average life span past full retirement age, is not much in terms of additional cost. COLA is far larger than life expectancy.
Another fact is that we know and can project the number of workers entering the work force for the next 20 years since they have already been born. There were be no new workers for the birth cohort of 2013 or before. In addition we can project the number of beneficiaries over the next 100 years since there will be no new beneficiaries born since 2013 is in the past.
Social Security OASI revenue depends on wages earned which determine future benefits. There is no guess work here.
What the writer is aledging is the SS-OASI is 35% funded, but that is only over a very short period of time. The write is correct that the problem facing SS today is far greater than in 1983. But just like the Greenspan commission did not FIX social security, the 75 year solvency period is not a fix either. For in year 76 Social Security once again will face a problem far larger than it now faces.
Social Security began having problem from day one when it in 1940 it began paying meaningful benefits without paying meaningful taxes. In 1950 on verge of being unable to pay benefits, they enrolled the the other 50% of the population that were described as undesirable's due to low and inconstant wages would be a drag on SS finances. So in order to support the first tier ponzi a second tier was formed to suport the fist. The third tier began in the lat 60's when both the tax and base were raised. In 1983 SS-OASI exhausted its trust fund, borrowed $11 Billion from SS-DI and Mediare's trust fund to pay current benefits. A fourth tier ponzi scheme was then created by the congress using the Greenspan Commission report.
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