Saturday, July 15, 2017

Social Security is secure- if we choose it to be

A couple of days ago, the Board of Trustees for the US's Social Security program released its report for 2017. As always, it had some interesting numbers and projections, starting with the typical long-term outlook that is often quoted as politicians debate the future of the program.
Annual OASDI cost exceeded non-interest income in 2010 for the first time since 1983. The Trustees project that cost will continue to exceed non-interest income throughout the 75-year valuation period. Nevertheless, total trust fund income, including interest income, is more than sufficient to cover costs through 2021, so trust fund asset reserves continue to grow. Beginning in 2022, cost exceeds total income, and combined OASI and DI Trust Fund reserves diminish until they become depleted in 2034. After trust fund reserve depletion, continuing income is sufficient to support expenditures at a level of 77 percent of program cost for the rest of 2034, declining to 73 percent for 2091. Figure II.D2 depicts OASDI operations as a combined whole. However, under current law, the differences between scheduled and payable benefits would begin at different times for the program’s two trust funds: in 2028 for DI (disability) and in 2035 for OASI. (Social Security for older people).
Not much different than what we have seen in the past, and this graph from last year largely holds, except that the cut in benefits for 2034 would be 23% instead of 21%.

Combining this graph with the updated numbers in this week's Social Security report, it means is that there is a "cliff" that would hit in 17 years that would require either a 23% cut in benefits, or Uncle Sam would have to do what he does with every other program that spends more than it takes in- by borrowing money to make up the difference.

What that chart doesn't show is that the $2.8 trillion in the Social Security trust fund isn't just laying around, it's earning income in low-risk investments. As a result, there was more money in that trust fund at the end of 2016 than there was in 2015.
The trust fund investments provide a reserve to pay benefits whenever total program cost exceeds income. Combined trust fund reserves increased by $35.2 billion for 2016 because income to each fund, including interest earned on trust fund reserves, exceeded total expenditures. At the end of 2016, the combined reserves of the OASI and the DI Trust Funds were $2,848 billion, or 298 percent of estimated expenditures for 2017. In comparison, the combined reserves at the end of 2015 were 305 percent of expenditures for 2016.
So Social Security's trust fund ran a $35 billion surplus in 2016, and has enough money in its bank account to pay for nearly THREE YEARS of benefits even if the taxes that fund it were to go away.

Also worth noting is this passage later in the trustees' report, where they note how much money is NOT taxed for Social Security, due to the cap on taxable earnings for the program (which the report says is $127,200 for 2017, meaning all payroll income above that is taxed at ZERO).
The ratio of taxable payroll to covered earnings (the taxable ratio) fell from 88.6 percent for 1984 to 82.6 percent for 2000, mostly due to much higher increases in wage levels for very high earners than for all other earners. From 2000 to 2010, the taxable ratio varied with the business cycle, rising during economic downturns and falling during recoveries. Specifically, the taxable ratio rose to 85.7 percent for 2002, declined to 82.4 percent for 2007, rose to 85.2 percent for 2009, and was 82.6 percent for 2015.
The flip side of that is pointing out that over 1/6 of Amercians' payroll earnings are not taxed for Social Security which leads me to bring up a simple reform that would likely solve any future funding issues with Social Security. Simply make the tax even for everyone.

Quick math indicates that the Social Security rate could be cut from the current 6.2% (employee) + 6.2% (employer) to 5.2%- + 5.2%, and if we made the rich pay the same percentage as the rest of us, and extended that 5.2% rate to all payroll earnings, it seems like it would raise the amount of revenue going into Social Security. It would be a $67.5 billion tax cut for everyone making income below $127,200 (using 2016's Social Security report), another $67.5 billion tax cut for employers, and that money would be made up and then some (by around $12-$13 billion a year) by imposing that tax on all payroll earnings, including those over $127,200.

Perhaps this evening of Social Security taxes would also have some positive macroeconomic effects, as giving massive amounts of money to high-end earners becomes less worth it for employers...and for CEOs to give themselves. At the same time, smaller employers who don't pay big-time salaries get a minor tax break, and the 90%+ of us that work for a living also get a tax cut. I strongly believe that there is more bang for the buck for the economy for those two groups to benefit, as they are more likely to spend it on activities that actually grow the economy, as opposed to rich people and corporations who tend to save/hoard their money, or spend it on less productive activities like gambling on Wall Street and buying politicians.

But that reality of a slanted-but-fixable tax system and a still-strong Social Security program didn't stop GOPs on Congress from trying to claim the program was in trouble. Buried in a national story mentioning that Social Security was going to give old people their largest raise in 6 years (at 2.2%), is this bit on finger-wagging from a Trump Administration official.
"Congress must act to ensure the long-term fiscal viability and sustainability and survival of Medicare and Social Security," said Health and Human Services Secretary Tom Price. "There are a great many ways that the situation can be addressed. The bottom line is that it must be addressed."
Hey Tommy, I'd worry more about the fiscal viability and sustainability of Americans facing medical emergencies due to inadequate health care, but that's just me.

Bottom line, Social Security is as stable as ever, and merely needs a small tweak on the revenue side or more political will to spend on it to continue as the successful program it has been for the last 80+ years. The only thing we might really have to worry about is if debt costs and our federal budget deficit goes up to maintain the program. While the debt part has its own concerns, there is no way Social Security ever goes "bankrupt"...unless members of Congress choose not to pay it.

These 3 1/2 minutes of facts from America's Favorite Politician are as true now as it was when he did it for the "Koch Brothers Exposed" movie a few years ago (with a few cameos from our own Lyin' Ryan!). The only difference is that the Social Security Trust Fund has about $300 billion more in it than when this video was taken.


  1. There is an another complication. The social security trust fund is more of a score keeping vehicle than a fund of marketable assets.The surpluses built up since 1983 are comprised entirely of non-negotiable treasuries.Converting those back to cash will require the government to buy them back. You can only spend a dollar once and combined budget surpluses comprised largely of social securityretirement surpluses were used to justify tax cuts on ordinary income, capital gains,dividends, and estates in 2001 and 2003.

    1. Good point on the "cashing in" part. But it's a good thing it takes an effort to do that, or else they'd have ripped off the trust fund as well.

  2. Looking at the federal fiscal year ending 9/30/01 the combined budget surplus reported of 127 billion dollars included 163 billion dollars of social security surplus and an additional seven billion dollars of military retirement surplus and 31 billion dollars of civil and foreign service retirement. The combined budget surplus was used to justify tax cuts.

    1. You got that right, sir! While I don't necessarily agree with segregating funds on the balance (not unlike the state with Trans Fund and General Fund at state level), you are correct that SS was conveniently included to justify Bush tax cuts.

      Know one of the few people I ever heard that brought up that point? Russ Feingold, a legit fiscal conservative.

      Thanks for chiming in!

  3. Sanders explains our situation well in the "Exposed" clip, something he's seen evolve for a long time.

    The pundit Jose Pinera shown has been described as the "world's foremost advocate of privatizing public pension systems," and has headed Cato Institute's Project on Social Security Choice.

    Pinera got his start in Chile, where he was 1978-80 Minister of Labor and Social Security for killer dictator Gen. Augusto Pinochet. His "Pinera model" Social Security Reforms were forced on Chile via Decree Laws in 1980, making Chile the first country on Earth to privatize public pensions, using "personal retirement accounts."