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Table T172.3 below, extracted from Table III.D1 in TR99, provides a little more information on the Eleven Year trend in the reported health of the SS program. (The actuarial balance figures are the same, except for the minus sign, as the actuarial deficit figures in Table T172.1 above). Remember, the actuarial balance figure is a flawed measure, because it ignores the cost to the general taxpayer of redeeming the SSTF bonds. But since it is the number one indicator used by the SS Trustees, I am presenting it anyway.
=====================================================
Table T172.3 -Long-Range Actuarial Balances for the OASDI
(Social Security) Program as Shown for the Intermediate
Assumptions [1] in the Trustees Reports Issued in Years 1989-99
[As a percentage of taxable payroll]
Change
Year Summarized Summarized From
Of Income Cost Actuarial Previous
Report Rate Rate Balance Year
------ ---------- ---------- --------- --------
1989 13.02 13.72 -0.70 -0.13
1990 13.04 13.95 -0.91 -.21
1991 13.11 14.19 -1.08 -.17
1992 13.16 14.63 -1.46 -.38
1993 13.21 14.67 -1.46 ( 2 )
1994 13.24 15.37 -2.13 -.66
1995 13.27 15.44 -2.17 -.04
1996 13.33 15.52 -2.19 -.02
1997 13.37 15.60 -2.23 -.03
1998 13.45 15.64 -2.19 +.04
1999 13.49 15.56 -2.07 +.12
[1] Values shown are based on the intermediate alternative II assumptions for 1991-99, and on the intermediate alternative II-B assumptions for 1989-90.
[2] Between -0.005 and 0.005 percent of taxable payroll.
Source: Table III.D1 in TR99 p. 193 {209}
For more information on comparing report editions
See also cc-ssrep98 -- Concord Coalition's discussion of the Trustee's 1998 report, and its comparison to the 1997 report that discusses the improvement of the SS outlook and SSTF solvency from the Trustee's 1997 report (when the SSTF solvency date was projected to be 2029) and the Trustee's 1998 report (when the SSTF solvency date was projected to be 2032).
It discusses how things may have improved, when measured by the flawed SSTF insolvency date and actuarial balance figures, but have actually gotten worse, because the bonds stacking up for longer and higher in the SSTF does not help the federal government to pay beneficiaries (what is piling up are promises that the general taxpayer will pay back what was borrowed). As an example of how things have really gotten worse, the deficit, as a percent of GDP for 2030, grew from 1.66% in the 1997 report to 1.79% in the 1998 report.
See also cc-99ci -- Concord Coaltion Issue Brief - The 1999 Report of the Social Security and Medicare Trustees, May 20, 1999 . It is really a comparison of the 1999 report with the 1998 and earlier reports (back to 1995). It shows, for all meaningful parameters (impact on taxpayers) a worsening trend for Social Security over the last 5 years. But, over the last two years, an improving trend in both Medicare Part A and Part B.
Availability of Trustees Reports Online, As Of August 1999
The full Social Security Trustees reports for the years 1995-1999 are available. The Summary Trustees Report is available for 1996 - 1999. The HI Trustees and the SMI Trustees reports are available only for 1998 and 1999. At least as far as I know. See the socsec-reports link, the sumtr99 link, and the medicare-reports links to obtain these reports.
I've heard the comment that it is impossible for an entire country to save for the future, certainly for the long - distant future. And I've heard this statement, "what do you propose we do to save for the boomers' retirement -- put money in a coffee can and bury it under the mall?" Another common argument is that it is the future workers that have to provide all the services for the future elderly. Whether the elderly saved a lot or a little prior to their retirement does not change the fact that it will be the future working - age population that produces all of the goods and services that they and the elderly will consume.
For some who believe that no inter-generational savings of any kind is possible: Consider, for example, the current $5.6 Trillion national debt. (The publicly-held portion of the debt is $3.7 Trillion, and the other $1.9 trillion is trust funds debt).
The publicly - held debt is an example of one or two generations that did not pay their bills. Interest on the publicly - held debt comes to nearly $1000 per capita per year. That means, on a per-capita basis, a household of four is paying nearly $4000 more in extra federal taxes per year than would be required if there was no publicly - held debt.
(I'm ignoring interest on the trust funds debt because it is just internal accounting that does not affect taxpayers in the present or the future -- as the trust fund assets/debt do not affect the government's ability or obligations to pay associated benefits. (non131) And for that matter, the $1.9 Trillion of trust funds debt doesn't really mean anything either. What matters is the promises we've legislated, not how many phony bonds we've stuffed in the trust funds. I've focussed on the $3.7 Trillion publicly-held debt to be conservative. But we should also consider the entitlement promises we've legislated, but failed to fund, as an additional failure - to - save. The trust fund debt is only a fraction of the lump - sum equivalent of future unfunded entitlements. For example, the Social Security Trust Fund has about $800 Billion of assets in mid-year 1999, and that $800 Billion is also a part of the trust funds debt. However, according to the Concord Coalition, the future unfunded entitlements of the Social Security program, when expressed as a lump - sum in today's dollars, is about $9 Trillion (non142). ).
See also non23 for more discussion on "the national debt matters".
The above illustrates that dis-savings has consequences on future generations. Likewise, it is clear that saving -- in the form of reducing or eliminating the debt -- will reduce the tax burden on future generations. Reducing the national debt is one good way that the boomers can save for their retirement, at least when compared to doing nothing and letting the debt stay or grow.
As to the argument that the working - age population produces all of the goods that they and the elderly consume, that doesn't mean that the elderly's assets don't matter. The question is, who pays for the goods and services that the elderly consume? The boomers can save for their retirement, and then when they retire they can pay for the goods and services from those savings. Or the boomers can save nothing, in which case it is the workers (gen X-ers) who pay for their goods and services.
For those of us who are boomers, what if we now save up, and buy a lot of real estate, and shares of corporations and stick it in the Social Security Trust Fund (SSTF)? Then we wouldn't be a financial drag on the next generation when we retire. We would sell these assets to the working generation in exchange for goods and services.
On the other hand, if we put nothing in the SSTF, as is currently the situation, then the working generation will still have to provide goods and services to us, but we would not have anything (no real estate, no ownership shares of corporations) to give them in exchange.
(Again, the bonds in the trust funds are phony for all practical purposes, as they aren't assets that will help the federal government pay beneficiaries, nor does the presence or absence of assets in the SSTF have any bearing on the government's legal obligation to pay benefits).
Certainly my kids will be happier and better able to take care of me if I have a lot of money than if I micturate it all away. I know I'd rather have rich parents than poor parents. Why is it all that different on the national level?
Some say that whether the boomers save or not only affects the distribution of wealth. The notion being that if the boomers save for their retirement by buying assets like real estate and shares of corporations, then that just leaves the younger generations with less assets to buy and own. The argument is that by saving and investing in these things, the boomers are grabbing a big slice of a fix-sized pie, leaving less pie for the younger generations.
But saving and investing is not a zero-sum game economically. It is what provides the resources to develop new processes and technology which leads to growth in living standards. There is a big difference to the future economy between whether the boomers save and invest, or whether they just consume beer and pretzels.
The arguments -- or rather excuses as to why the boomers can't save for their retirement -- go a long way to explaining why as a nation, we have a negative savings rate.
The arguments some boomers make about the impossibility or infeasibility of saving for retirement amount to a convenient excuse not to do anything real to save for retirement. Nor to do anything to somewhat improve the situation of the next generations who may end up paying double today's payroll tax rates. Similarly, the statements that too many in the goverment and media make about how we're saving for retirement by investing in bonds in the Social Security Trust Fund is often used as an excuse to do little or nothing to fix Social Security. Granted, many in the media make statements like that out of pure innocent ignorance. But some in the media -- and certainly most government officials who make a statement like this -- know that this is a half-truth that presents a very rosy and distorted picture. But they make statements like this anyway. See section non135 on misleading statements. False or half-truth statements like these remind me of this proverb:
"We cook the rice in the name of the children, but it is the adults who eat."
This site tries to present both sides, and not be TOO biased. Well, so for a change I decided to give the "no - big - problem" side the last word on this subject, and to resist making commentary. The below is from Robert Eisner, professor emeritus of economics at Northwestern University. The following is from page 58 of his book, "The Great Deficit Scares":
[Begin Eisner quotes. Headings are mine:][F6.A] Are Inter-generational transfers feasible? (180)
Rarely considered is the basic issue of whether such inter-generational transfers are justified as a matter of equity, let alone whether they are economically feasible. With regard to the latter ... at any given time everyone alive must be supported by those who are working and producing at that time. The only way to change what is available at any time is to change the quantity (or quality) of productive capital in use at that time. This includes all capital, public and private, human and intangible as well as physical and tangible.
The questions about the practicality of such intergenerational transfers and whether they really push out what economists' jargon calls the "intertemporal production possibility frontier" have not generally been clearly answered. Conservative advocates of a lesser role for govenrmnent are likely to argue that devoting more resources to public investment will not help; government activities are inherently wasteful and nonproductive. But advocates of free markets may also question whether public policy intended to increase private saving and investment will necessarily raise productivity.
[F6.B] Measures to increase savings may depress the economy (181)
First, measures to increase saving may, if reduced consumption lowers income and output, actually lessen investment and hence savings. The old Keynesian paradox of thrift may, under certain circumstances, be operative. Would the lower interest rates presumably stemming from increased efforts to save offer enough stimulus to investment to counter the depressing effect of lower consumption?
But even if more investment were to be realized, what if business has already carried investment to the point where further capital will add nothing to net product, that is, will add less in terms of productive capacity than its cost? More national saving may then leave us with less consumption now and less consumption in the future as well. It may fail to encourage sufficient future consumption to compensate for the current cost of investing.
[F6.C] Are sacrifices by the boomers or the elderly justified? (182)
A more basic question is whether sacrifice by the current generation in the interest of the future is justified. Is it known that those living in the future will be in greater need than those living now? Is it not likely that, with continued growth in the economy, our children and grandchildren will live much better than we do without any increase in saving? I have noted previously that even a modest 1 percent annual increase in output per worker will raise per capita income by more than a third by the year 2030, and even more as the years go by. Why should people today sacrifice so that those lucky enough to be born later will still live better?
It is extremely difficult to define an "optimal rate of saving," particularly when dealing with saving by one generation or age cohort that is presumed to benefit another. What are the obligations of the old to the young? Have the elderly perhaps helped the young enough by raising them and investing in their education?
[F6.D] Why more goverment spending (even deficit spending) on child care, education, etc. is justified (183)
And if the elderly are to help the young more, is not that better done by raising them better -- beginning with prenatal care and going on to improved child care and education at all levels -- by better parenting, and by protecting all of our children and neighborhoods from poverty, crime, and drugs?
In view of all these considerations, one can hardly argue that budget deficits, particularly as currently measured, should necessarily be reduced, let alone eliminated. Aggressive budget cutting might not be socially desirable even in the uncertain event that it did increase national saving. Similar doubts extend to efforts to slash the trade deficit if these take the form either of slowing the economy or of interfering with free trade at the expense of economic efficiency. And they apply all the more strongly to unfair -- indeed unconscionable -- efforts to deal with hypothesized Social Security deficits by cutting benefits to the elderly.
There are real deficits in our society. Deficits in the provision of a safe, uplifting environment for all of our citizens. Deficits in education of the young and protection of all from violence. Deficits in preservation and improvement of the country's natural resources of land, water, and air. Our real problems are not the deficits -- actual, exaggerated, or alleged -- in the federal budget, international trade, and Social Security.
[End Eisner quotes ]
Many media reports indicate that the annual social security surpluses are being saved for the baby boomers' retirement -- by investing in government bonds and locking them away in the Social Security Trust Fund (SSTF). I've heard at least three government officials say the same thing. See section non135 on government and media misinformation.
It is very rare that I hear anyone in the media ask the question -- where will the government get the money to redeem the SSTF bonds?
The question of whether anything has been saved or is being saved in the Social Security system for the boomers' retirement can be broken down into four questions:
{Q1} Are the hundreds of billions of dollars of Special Issue Treasury obligations (SIT obligations) in the SSTF of any value?
{Q2} Will the SIT obligations in the SSTF help lighten the burden on future taxpayers? In other words, if there are, for example, $800 Billion of SIT obligations in the SSTF, will that lighten the burden on future taxpayers by $800 Billion?
{Q3a} In years past, we've been collecting the annual social security surplus revenues, and loaning them to the general fund, which promptly spent them on current general federal programs. Is this not a form of saving -- in that had there not been the SS surpluses, the federal government would have run larger deficits, and so would be deeper in debt?
{Q3b} Also, given that some of the surplus revenues have been spent on things that will improve productivity in the future -- such as infrastructure, education, and scientific research -- can't we consider that spending as a form of savings and investment?
{Q4} As in the past, all of the SS surplus revenues are all being currently loaned to the general fund. However, unlike the past 30 years, we now have a qualified annual budget surplus. Thus, some of the SS surplus revenues are being used by the general fund to retire some of the the publicly - held debt. Isn't that a form of savings?
Here again are the questions and some discussion of each.
{Q1} Are the hundreds of billions of dollars of Special Issue Treasury obligations (SIT obligations) in the SSTF of any value?
Briefly, the universal consensus answer is yes. These SIT obligations are backed by the full faith and credit of the U.S. government. (The trouble is, as the next answer will explain, is that while they are assets to the SSTF, they are also liabilities to the general fund.).
(hits since Sept. 16, 1999)
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