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The March 1999 Social Security Trustees' Low Cost Scenario (the most optimistic of the three scenarios) shows that the SSTF assets not only last all the way out to the end of the 75 year projection period, but are actually growing. See Table III.B3 of the March 1999 SS Trustees Report (TR99) and be sure to look at the Low Cost portion of the table. For example, the SSTF assets are as follows in these latter years: 2065: 31 T$; 2070: 37 T$; 2075: 45 T$. (T$ is Trillions of Current Dollars). (Part of Table III.B3 is repeated below as Table T169.1, although in that part, I don't show the SSTF assets.).
Some of the "no-big-problem" people cite this scenario as an example of how a "small" favorable shift in demographic and economic assumptions will cause the SSTF assets to remain positive and even keep growing through 2075 and beyond. However, the growth in the assets in the latter years is caused by the interest earned by the trust fund. The interest is just a book-keeping transfer from the general fund to the SSTF in the form of SIT obligations. And as stated countless times, SIT obligations in the trust funds have no impact on the obligation or the ability of the federal government to pay benefits. (See section non131).
What matters is the Net Cash Income. (This is what the Concord Coaltion calls "net operating (cash) income" or "operating balance"). Net Cash Income is the difference between Cash Income and Outgo. (Outgo is payments to beneficiaries and administrative expenses). Cash Income consists of all SS tax revenues (and does not include interest). In the Low Cost scenario, Net Cash Income is positive and peaks at 118.9 B$ in 2008. Then it declines to 73 B$ in 2015 and continues to decline, reaching a deficit in 2018 or 2019. After that, the deficit continues to grow, reaching 894 B$ in 2075. See the table below.
===================== (170) ==========================
Table T169.1
Estimated Operations Of The OASDI (Social Security) Trust Fund
LOW COST SCENARIO
Selected Columns
From Table III.B3 Of The March 1999 Social Security
Trustees Report
L O W C O S T S C E N A R I O
==============================================
Cash Net Cash
Income Income As
(Income Net % Of
Calendar Excluding Cash Cash
Year Interest) Outgo Income Income
-------- --------- ------ ------ ---------
1999 466.5 392.9 73.6 15.8%
2000 486.8 406.5 80.3 16.5%
2001 510.5 422.4 88.1 17.3%
2002 533.4 439.8 93.6 17.5%
2003 557.3 458.9 98.4 17.7%
2004 582.6 480.0 102.6 17.6%
2005 610.4 502.7 107.7 17.6%
2006 638.1 526.7 111.4 17.5%
2007 669.0 552.5 116.5 17.4%
2008 699.2 580.3 118.9 17.0%
2010 765.5 647.8 117.7 15.4%
2015 949.1 876.1 73.0 7.7%
2020 1167.1 1203.1 -36.0 -3.1%
2025 1428.6 1598.7 -170.1 -11.9%
2030 1753.4 2046.8 -293.4 -16.7%
2035 2161.0 2531.4 -370.4 -17.1%
2040 2669.5 3050.5 -381.0 -14.3%
2045 3294.9 3676.5 -381.6 -11.6%
2050 4063.2 4471.7 -408.5 -10.1%
2055 5010.9 5506.3 -495.4 -9.9%
2060 6190.0 6789.0 -599.0 -9.7%
2065 7657.4 8331.5 -674.1 -8.8%
2070 9470.2 10222.9 -752.7 -7.9%
2075 11701.1 12595.5 -894.4 -7.6%
====================================================
It's not as bad as it looks, though. The deficit as a percent of Cash Income peaks at 17.1% in 2035, and then declines to 7.6% in 2075. Thus, in 2035, the year of the largest deficit percentage, Cash Income is sufficient to meet 83% of expenditures (100 - 17.1 = 83). And in 2075, Cash Income is sufficient to meet 92% of expenditures. ( 100 - 7.6 = 92 ).
However, the Low Cost Scenario is not a "small" demographic or economic shift either, as one can see comparing the Intermediate and Low Cost columns in the below. (The SS Trustees consider the Intermediate Scenario to be the most likely scenario.) One or two variables changing by amounts like these would be considered a small shift, but when several variables move in the same direction, it is a moderate shift. (Even considering that some of the variables are mutually dependent).
====================================================
Table T171.1 (from Table I.E1 of TR99)
Ultimate Economic and Demographic Assumptions
(In addition, I added growth in Real GDP and Labor Force, from Table II.D1. And
I added 1989-1998 figures from these tables too -- I found a simple 10-year
average)
Scenario: Actual Inter- Low High
1989-98 mediate Cost Cost
Annual percentage change in:
------------------------------------------
Average wage in covered employment . . . . . . 4.2 4.2 3.7 4.7
Consumer Price Index (CPI) . . . . . . . . . . 3.2 3.3 2.3 4.3
-------------------------------- ---- ---- ---- ----
Real-wage differential (percent) . . . . . . . 1.0 0.9 1.4 0.4
Labor Force . . . . . . . . . . . . . . . . . 1.2 0.1 0.6 -0.5
Real GDP . . . . . . . . . . . . . . . . . . . 2.6 1.2 2.1 0.3
Unemployment rate (percent) . . . . . . . . . . . 5.9 5.5 4.5 6.5
Annual interest rate (percent). . . . . . . . . . 7.1 6.3 6.0 6.5
Total fertility rate (children per woman) . . . . 2.0 1.9 2.2 1.6
Life expectancy at birth in 2075 (combined
average for men and women, in years) . . . . . 75.2 81.8 78.8 85.7
Annual net immigration (in thousands) . . . . . . . . . . 900.0 1,150.0 750.0
Source: TR99, Table I.E1, p. 11 {27} and Tables II.D1 p. 58 {74}
and II.D2 p. 62 {78}
====================================================
A previous section, "Only A 2 Percentage Point Increase In Payroll Taxes Is Needed To Solve The Social Security Problem", section non167, has much more discussion on the future funding problems of the Social Security system. Section non234 looks at the Trustees' demographic and economic projections in detail. Section non172 looks at the question of whether the Trustees have generally been pessimistic in the past.
All figures given in this section for 1999 and beyond are INTERMEDIATE projection figures. (As is true throughout this web site -- any figures from the SS Trustees or the HI or SMI Trustees reports for 1999 and beyond are Intermediate projection figures unless otherwise stated).
Each SS Trustees report in the last two years has extended the critical dates, like the Social Security Trust Fund (SSTF) insolvency date, as well as showing an improved actuarial balance, when compared to the previous year's reports. For example, in the 1997 report, the 1998 report, and the 1999 report, the SSTF insolvency date was projected to be 2029, 2032, and 2034 respectively. This is quite an improvement in outlook over the last 2 years. Similarly, in the 1997 report, the 1998 report, and the 1999 report, the actuarial balance was projected to be -2.23 %, -2.19 %, and -2.07 % respectively. This too is a significant improvement (actuarial balance is explained shortly -- but in a word it represents the 75 - year period funding gap in percent of payroll).
Some "no problem" people have seized on this little 2 - year trend of improvement in these figures to conclude that the Trustees have been overly pessimistic in the past. As we'll see however, looking over a longer period of time, (and excepting these last 2 years), these figures have been getting worse. Which indicates (again excepting the last 2 years) that the SS Trustees have generally been overly optimistic.
Also, when the real measures of SS program health are used, then even the last 2 years show a decline in SS program health. (The real measures include the impact on the general taxpayers. Whereas the SSTF insolvency date and the actuarial balance measures leave out the impact on the general taxpayers).
The actuarial balance is the primary measure the SS Trustees use in assessing the financial condition of the SS program. The SSTF insolvency date is another measure that the SS Trustees use to express the health of the SS program. Both are flawed measures, because they ignore the cost to the general taxpayer of redeeming the trust fund bonds. (This cost is projected to be $7.8 Trillion between 2014 and 2034). Put simply, these measures assume that the "assets" in the SSTF are real assets that can be drawn upon to pay benefits. What's ignored is that the SSTF assets are also general fund liabilities, and it will be the general taxpayer that has to come up with these funds.
In the 1999 report, the actuarial balance is the familiar -2.07 % figure, meaning that payroll taxes need to be increased now by a combined (employer + employee) total of 2.07 percent of payroll, in order to keep the SSTF solvent for 75 more years. But as explained above, this figure ignores the cost to the general taxpayers of redeeming the SSTF bonds.
The below table shows the steadily worsening trend in actuarial balance with each report from 1989 to 1997, followed by an improvement in this figure during the last 2 years. (I show below the "actuarial deficit", which is the same as the actuarial balance, but without the minus sign).
====================================================
Table T172.1
SS Actuarial Deficit As Projected By SS Trustees Reports During The
Last Eleven Years
Year Of Report 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Actuarial Deficit 0.70 0.91 1.08 1.46 1.46 2.13 2.17 2.19 2.23 2.19 2.07
Source: TR99 p. 193 {209}
====================================================
The below table shows some of the critical dates as given in the Trustees' reports of the last 5 years. (Yes, there are a lot of blank spots in it. This is a work in progress). For example, the 4/97 Trustees' Report projected that the SSTF will become insolvent in 2029. The 4/98 Report projected a 2032 SSTF insolvency date, and the 3/99 Report projected a 2034 SSTF insolvency date.
====================================================
Table T172.2
Various Measures of Program Health As Projected by Trustees
Reports During The Last Five Years
Social Security
===============
Projection Date: 4/95 6/96 4/97 4/98 3/99
* Peak Oper. Ann. Surp Date 1998 2001 2001 2001
* Oper. Ann. Deficit Date 2013 2012 2012 2013 2014
Ann. Deficit Date 2020 2019 2019 2021 2022
Insolvency Date 2030 2029 2029 2032 2034
Actuarial Deficit 2.17 2.19 2.23 2.19 2.07
* Deficit (% of Payroll, in 2035) 4.44 4.23 4.70 5.02 5.05
* Deficit (% of Payroll, in 2070) 5.71 5.51 5.86 6.20 6.29
* Deficit (% of Payroll, in 2075) NAV NAV 6.07 6.43 6.53
HI (Medicare Part A)
====================
Projection Date: 4/95 6/96 4/97 4/98 3/99
* Oper Ann. Deficit Date 1992 1992 1992 1992 1992
Ann. Deficit Date < 1998? 2006
Insolvency Date 2001 2008 2015
Actuarial Deficit 2.10 1.46
* Deficit (% of Payroll, in 2035) 4.80 5.95 6.09 3.13 2.24
* Deficit (% of Payroll, in 2070) 6.77 8.38 8.11 4.39 3.39
* Deficit (% of Payroll, in 2075) NAV NAV NAV 4.61 3.59
SMI (Medicare Part B)
====================
Projection Date: 4/95 6/96 4/97 4/98 3/99
* Deficit (% of Payroll, in 2035) 5.13 4.00
* Deficit (% of Payroll, in 2070) 5.67 4.47
* Deficit (% of Payroll, in 2075)
NAV means Not Available.
Blank spots generally mean I haven't gotten the appropriate report yet and filled in the data. Most of the missing reports are not available on - line.
Briefly, before getting into the meanings of some of the symbols and abbreviations, the above table shows that with each passing report, and for the things that matter (the impact on the taxpayer) the Social Security situation has been getting worse. But the Medicare Part A situation has been getting better, at least in the last two years. Unfortunately, only the 1998 and 1999 Medicare Part B reports are online, so I can't show a five year trend for it, and thus I can't show the five year trend for both parts of Medicare combined either. From the two years of data available, Medicare Part B shows an improvement over the last year.
Regarding the big improvement in Medicare Part A's situation between 1997 and 1998, one must remember that in 1997 legislation, home health care costs were shifted from Part A to Part B ($12.7 billion in 1998, and probably more in later years), thus making Part A look better. See section non201 for more information on that.
One must also remember that Part B's cost per enrollee for the last 25 years has been increasing so rapidly that if this trend were to continue in the future, it would consume such a large share of GDP as to be unsustainable. Therefore, the Trustees arbitrarily scaled back the projection, so that in the last 50 years, the cost per enrollee grows no more rapidly than the GDP per capita growth rate. See section non201 for the excerpt from the 1999 SMI Trustees Report that tries to justify this.
The "*": In the above, items with an "*" in front of them are real measures of program health, because they include the impact on the general taxpayer. Whereas items without an * in front are faulty indicators in that they ignore the impact on the general taxpayer, and/or include interest that the trust fund has earned. Trust fund interest earnings are another bookkeeping artifice, as any interest a trust fund earned must be paid by the general taxpayer.
SSTF = Social Security Trust Fund (actually the combination of the OASI trust fund and the DI trust fund).
Actuarial Deficit: (2.07% for SS in the 1999 report): This is the negative of Actuarial Balance. For SS, Actuarial Balance for all years comes from TR99, table III.D1, p. 193 {209}. For HI, they came from the Trustees' Summary Reports for 1998 and 1999. (They are also available from the HI Trustees' Reports).
Ann = Annual
Oper = Operating (Cash) -- means excluding interest. An SSTF operating (cash) surplus means that income from dedicated Social Security taxes (in the case of the SSTF) exceeds outgo for benefits and administrative expenses. It is also known as a "cash" surplus because cash flowing into the system exceeds cash flowing out of the system. (In contrast, interest is not a cash transaction. Rather, interest is paid from the general fund to the SSTF in the form of Special Issue Treasury (SIT) obligations -- also referred to as intergovernmental IOUs)
Peak Operating Annual Surplus Date (2001 for SS in the 1999 report): when the operating annual surplus reaches its maximum dollar value. For Social Security, I got from TR99 Table III.B3, which gives "Income Excluding Interest" and "Outgo". The difference between these two quantities is the Surplus. I had to perform these subtractions for a few years on either side of the year 2001 in order to determine the year that this Surplus peaks. For HI, this date isn't applicable in the last five years, because there has been an Operating Annual deficit since 1992.
Operating Annual Deficit Date (2014 for SS in the 1999 report): The first year there is an operating deficit for the year as a whole. (The HI trust fund has been running an operating annual deficit since 1992, per the Concord Coaliton, cc-99ci).
Annual Deficit Date (2022 for SS in the 1999 report): the first year there is a deficit for the year as a whole, even counting interest. For SS, for the three reports 1997, 1998, and 1999, I got it from the "long form" of Table III.B3 in the Social Security Trustees Reports. The 1999 version is available at http://www.ssa.gov/OACT/TR/TR99/lr3B3-2.html. The 1998 and the 1997 ones are at the same URLs except "TR98" and "TR97" replaces "TR99" respectively. As for 1995 and 1996, the "long form" of Table III.B3 is not available. The regular form of Table III.B3 for these years is given at five year intervals. I did a simple linear interpolation between 2015 (when there was a surplus) and 2020 (when there was a deficit), in order to find the deficit year. For HI, I got it from the 1998 and the 1999 Trustees Summary Reports, which covers both SS and Medicare.
Insolvency Date (2034 for SS in the 1999 report): the year that the trust fund becomes exhausted. For SS, this date is given in Table III.B3 as a footnote, and in many other places in the report.
For HI, the figures came from the 1998 and 1999 Trustees Summary Reports which have information for both SS and HI. The 1999 Trustees' Summary Report, formally titled the "SUMMARY OF THE 1999 ANNUAL REPORTS, Social Security and Medicare Boards of Trustees" is available at sumtr99. One can also download the HI trustees reports, at least for 1998 and 1999, at the medicare-reports link. For finding HI reports for earlier years, I haven't looked further into it -- maybe these aren't online either.
Deficit (% of Payroll, in 2035): The operating (cash) deficit in 2035, expressed as percent of taxable payroll. The figures are from Concord Coalition, 5/20/99. As for SMI (Medicare Part B), it is not financed by a payroll tax. The Concord Coalition gives the figures only as percent of GDP in their main table (But in a footnote they include the equivalent percent of payroll figures). (I converted percent of GDP to percent of payroll using the same ratio of these quantities as for part A, and found that my figures matched the Concord Coaltion's footnote figures.) The SMI figures include only the general revenue subsidy (which pays about 75% of SMI's costs). It does not include the Medicare Part B premium (which pays about 25% of SMI's costs). See also the note on "Deficit (% of Payroll, in 2070 and 2075)" below.
Deficit (% of Payroll, in 2070 and 2075): See above "Deficit (% of Payroll, in 2035)" for what this is generally. Except here we're talking about the deficit in 2070, and in 2075. On July 29, 1999 I found some errors in the Concord Coalition data in cc-99ci (the 1998 and 1999 SS figures reported as 2070 figures are really 2075 figures). So I retrieved Table III.A2 (which has SS and HI data) and Table II.F13 (which just has SS data) for all five report years 1995 - 1999. For 1997, 1998, and 1999 Table II.F13 (which only has SS data) goes out to 2075. For 1995 and 1996 Table II.F13 goes out only to 2070. For 1998 and 1999 Table III.A2 (which has both SS and HI data) goes out to 2075. For 1995, 1996, and 1997, Table II.F13 goes out only to 2070. (All tables in this paragraph are from the Social Security Trustees Report for the appropriate year).
Just to explain the various dates by way of narration: Reading down the March 1999 column of Table T172.2, it means that in the 1999 report, for the Social Security Trust Fund (SSTF), the annual operating (cash) surplus reaches its maximum value in the year 2001, and then begins to decline, until it reaches a deficit in 2014. However, including interest, the SSTF continues to run a surplus until 2022. In 2022, the SSTF experiences its first deficit (even including interest). From 2022 on, the deficits eat away at the SSTF "assets" until 2034, when the SSTF runs out of "assets". Mercifully, at last, the trust fund accounting game -- and the fiction that the SSTF is a reservoir of savings -- comes to an end.
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