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Created 9/16/99 -- See fb-changes.html for what's new and a revision history.
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[D] Social Security Has No Problem If The SS Trustees' Low Cost Scenario Occurs? (168)
[D1] In the Low Cost Scenario, The Cash Flow Becomes Negative In 2019 and Stays Negative (169)[D2] Demographic and Economic Assumptions In The Low Cost (and other) Scenarios (171)
[F] There is no way for an entire generation to save for the future? (173)
[F1] The $3.7 Trillion publicly - held national debt is an example of dis-savings that will hurt future generations (174)[G] But we are saving the SS surplus by investing it in government bonds, aren't we? (184)[F2] Reducing the publicly - held national debt is one good way to save (175)
[F3] Boomers can save, by investing, and future generations will be better off for it (176)
[F6] Robert Eisner (liberal, no-big-problem) point of view (179)
[F6.A] Are Inter-generational transfers feasible? (180)[F6.B] Measures to increase savings may depress the economy (181)
[F6.C] Are sacrifices by the boomers or the elderly justified? (182)
[G1] The Four Questions To Ask About Whether Anything Is Being Saved (185)[G2] Q1. Are the SIT Obligations in the SSTF Of Any Value? (186)
[G3] Q2. Will the SIT Obligations in the SSTF Lighten The Burden On Future Taxpayers? (187)
[G4.A] We've only been attempting to balance the unified budget, not the portion excluding SS (weak) (189)
[G5] Q3b. Since we spent some of the SS surpluses on future productivity enhancement, isn't this a form of savings? (193)[G7] The key point -- the trust funds have no real assets (195)
[H1] Because we anticipate a very large and sustained increase in Social Security costs with near certainty (197)[I] Accounting Changes, Questionable Accounting Procedures (201)[H2] Saving Up For Future Wars? By Paying Off The Debt In Times Of Peace (198)
[J] It is Politically Impossible to Cut Benefits? (202)
[J1] Benefit cuts that have already been made (203)
[K1] Some say the real income of median and below earners has declined (207)[K2] The Social Security trustees forecast real wage growth of 0.9%/year (208)
[K3] United For Fair Economy's "Shifting Fortunes" report (209)
[L1] Kenneth Apfel (SS Commissioner) 2/99 Quote, and Analysis (211)[L2] Another Analysis -- Taking Tables T30.1 and T30.2 and Adding In Federal Net Interest (212)
[M1] SIT Obligations Are Non-Marketable (214)[M3] SSA actuarial Note #142 On Trust Fund's Assets and Special Issue Treasury Obligations (216)
[M5] SIT Obligations Are Backed By Full Faith And Credit Of The U.S. Government (218)
[M6] Marketable Bonds In The Trust Funds (219)
[M7.A] They Are Backed By The Full Faith And Credit of the U.S. Government, Just As Regular Marketable Treasury Obligations Are (221)[M7.B] Arguments As To Why In Reality The Trust Funds' SIT Obligations May Be Inferior (222)
[M7.B1] They Aren't Market - Tested. And There Is No Redemption Date (223)[M7.B2] Laws Have Been Changed In The Past To Cut Benefits (224)
[M7.B3] Accounting Changes Have Been Made To Make the Trust Funds Look Better (225)
[M7.B4] There Have Been No Laws Made That Adversely Affect Marketable Securities (226)
[M7.C] Govt's reason not to use real marketable bonds for the trust funds (so as not to impact the financial markets) is questionable (232)
Question: The Social Security Trust Fund is projected to be solvent until 2034, isn't it? And that is under the SS Trustees' Intermediate scenario, which many consider pessimistic. And I understand that only a small positive shift in the demographic or economic assumptions is all that is needed to make the SSTF solvent indefinitely. Given the improving economy, why not wait a couple of years before taking some drastic action to "save" Social Security?
Answer: There are assets in the Social Security Trust Fund (SSTF), but these assets are also Treasury general fund liabilities. And so overall, they do not represent assets to the federal government or future taxpayers. The SSTF is not a reservoir of value that can be drawn upon to pay future beneficiaries. The SSTF, sad to say, is irrelevant. All that matters is the operating (cash) flow. These points are thoroughly discussed in section non77. See also quotes from official government documents and others in section non122 and section non129 that confirm that the SSTF is no more than an accounting device with no real economic assets to the federal goverment overall.
A moderate (not small) favorable shift in demographics could result in the SSTF's solvency being extended so that it lasts for 75 or more years. But again, the solvency of the SSTF has nothing to do with the federal government's (i.e. future taxpayers') ability to pay benefits. See for example section non168 where in the SS Trustees' most optimistic scenario, the SSTF life is extended indefinitely. Yet even in that scenario, SS will still need continuous infusions of cash from the general taxpayer after about 2018. The main reason for this paradox -- that the SSTF can be ever - growing while SS needs real money from the general taxpayer beginning in 2018 (in the SS's optimistic scenario), is due to the SSTF being credited with "interest", which is paid to the SSTF in the form of government bonds (Special Issue Treasury obligations). And it will be the general taxpayer who will be called upon to come up with the money to redeem these bonds.
Question: I hear that the Social Security Trust Fund is projected to go bust in 2034. I don't expect to retire until at least 2040. So I'm screwed, aren't I?
Answer: The Social Security system is not going to go "bust" just because the Social Security Trust Fund (SSTF) runs out of assets (as it is projected to do in 2034, according to the SS Trustees' intermediate scenario). In 2035, when the SSTF is no more, the current payroll tax (12.40% evenly split between employer and employee) is projected to be sufficient to fund 71% of Social Security benefits. Even as far out as 2075, the current payroll tax will be sufficient to fund 67% of Social Security benefits. See section non21 in the Introduction for more discussion of this topic.
In any case, the status of the SSTF is irrelevant. It does not contain any assets that will help the federal government to pay benefits. Furthermore, the federal government is obliged to pay all benefits prescribed by law whether or not the SSTF is full or empty. See section non122 for official government documents and officials who say that the assets in the SSTF do not affect the ability nor the obligation of the federal government to pay benefits.
Question: The Social Security Administration and the OASDI (Social Security) Trustees say that the Social Security funding problem is only a small problem if we deal with it now. They say that raising payroll taxes by 2.07 percent of payroll is all that is required to make the Social Security Trust Fund solvent for at least 75 years. And other measures can be taken besides raising payroll taxes that are less painful and fairer to low income workers. I think those who say Social Security is "broken" and in desperate need of "reform" are mostly greedy finance industry fatcats who want to see Social Security "privatized" so that they can earn huge fees for managing the money.
Answer: First, let's be clear exactly what the 2.07 percent of payroll increase in Social Security payroll taxes means. It means that the employee pays an increase of 1.035% of payroll (half of 2.07%), and the employer pays an increase of 1.035% of payroll (also half of 2.07%). Thus, the employee and employer pay a combined increase of 2.07% of payroll. This is explained in more detail and illustrated in section non71.
Next, as explained in section non165, the trust fund contains no assets that will help the federal government or future taxpayers to pay benefits.
Another problem is that the 2.07% number does not include the $7.8 Trillion in SSTF Special Issue Treasury obligations that the Treasury general fund will have to redeem between 2014 and 2035. So the complete picture is that a 2.07% increase in payroll taxes PLUS $7.8 Trillion will be needed. See section non72 for more about the $7.8 Trillion.
In fairness, note that the $7.8 Trillion is over a 21 - year period and most of it occurs in the last few years. It is equivalent to a lump sum of about $1.5 Trillion in year 2000 dollars, which in turn amortizes out to $108 Billion/year over the 34 - year period 2000 - 2034. (See section non28 for more on the $1.5 Trillion figure and the $108 Billion / year figure).
Another way to look at the financing problem of Social Security is to look at its projected cost, when expressed as a percent of payroll. From Table T69.1, repeated below as Table T167.1, and reading from the OASDI column (OASDI is synonymous with Social Security), we can see that the cost of the SS program, when expressed as a percent of payroll, is expected to nearly double -- from 10.80% of payroll in 1999 to 18.18% of payroll in 2040.
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Table T167.1 (From Table T69.1)
Cost Rates Expressed As % Of Payroll
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Cal. OASDI +
Year OASDI HI SMI Medicare Medicare
1999 10.80 3.10 1.95 5.05 15.85 %
2040 18.18 5.79 5.37 11.16 29.34 %
2050 18.28 6.06 5.32 11.38 29.66 %
2070 19.63 6.78 5.95 12.73 32.36 %
Medicare = HI + SMI. Also, OASDI is synonymous with Social Security.
Source: March 1999 Trustees' reports. See section non31 for more details.
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One must not forget Medicare. (It is a common tactic of the "no - big - problem" side to make SS and Medicare look like two medium - sized problems rather than together as one large problem). SS and Medicare costs combined are expected to nearly double between 1999 and 2040, from 15.85% of payroll to 29.34% of payroll. And to continue to increase after that.
Some people fault the OASDI (SS) Trustees' Intermediate projection as being pessimistic with respect to real GDP growth. However, the projected GDP growth is low because the growth in the labor force is expected to be very low -- 0.2% per year after 2020, and 0.1% per year after 2050. Productivity is expected to increase at about the same rate as in the past 30 years. See section non234 for much more discussion on whether the Intermediate forecast is too pessimistic.
Finally, history has not been very comforting. Social Security payroll tax rates (combined employer + employee) have steadily increased from 3.00% in 1950 to 12.40% now -- which is a factor of 4.1 increase. Also, the maximum wage that Social Security taxes has gone up from $3,000 in 1950 to $72,600 now ( 1999 ) -- which is a factor of 24.2 increase. The real (wage inflation - adjusted) SS payroll tax burden on the maximum wage earner has gone up 8.7 fold during that period. See section non70 for details.
Combined Social Security and Medicare payroll tax rates have gone up from a 3.00% payroll tax rate in 1950 vs. 15.30% now (these are combined employer + employee rates) -- a factor of 5.1 increase in tax rate. See section non70 for details.
Some say the problem with Social Security and Medicare is that the trust funds earn too low a return. And that if we invested the trust funds in the stock market, (or say half in corporate bonds and half in stocks), then the higher returns would make the problem go away.
However, one must remember that there are no assets in the trust funds to invest -- they've all been loaned to the Treasury general fund and spent, in return for "Special Issue Treasury obligations". And if we stop using the SS surpluses to fund other federal programs (or currently to reduce the federal publicly - held debt as well), then those activities would have to be funded by tax increases or spending cuts. (We don't have to reduce the publicly - held debt, but it would be one of the best ways to prepare ourselves for the adverse demographic times ahead. The point is, when comparing the current system to a system that invests the SS surpluses in the private sector, one must remember to include the benefits of debt - reduction under the current system). For further discussion on privatization, and in particular the issue of "transition costs" from the current pay - as - you - go system to a truly pre-funded system, see section non106.
(hits since Sept. 16, 1999)
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