Social Security

Social Security

(The real story and the Democrats version!)

Since at least 2005 the Social Security Trustees have been urging Congress to act in a timely manner in passing reforms to the Social Security Program in order to improve its financial viability.  They've stated:
 

"The projected trust fund deficits should be addressed in a timely way to allow for gradual phasing in of the necessary changes and to provide advance notice to workers.  The sooner the adjustments are made the smaller and less abrupt they will have to be."   So while the Social Security Trustees, President Obama's cabinet members, the Congressional Budget Office, the Committee for a Responsible Federal Budget all talk about the need for quick action in reforming the Social Security Program, we hear a much different story from Democrats.   Sen. Harry Reid tells us there is no rush in making changes,  In fact he is quoted as saying he won't even consider making changes until 2031 (2011 + 20 years).  Most Sen. Democrats have also chimed in telling us that reforms can wait.  And some are even recommending increasing benefits adding too the cost of the program and the likelihood of the trust funds running out of funds sooner than currently being projected (2033).   Check out Sen. Reid's and others' statements about the Social Security Trust Funds made during their "Hands Off Social Security Rally" as reported by Michelle Hirsch of the Fiscal Times.   Hands Off Social Security Rally (March 2011)  I started monitoring the WH OMB budget projections in 2009 when President Obama's WH OMB released the 2010 budget projections.  The ten year projections were for SS Outlays to exceed SS Payroll Tax Receipts by $200 billion.  That number has increased with each new set of projections.  The 2015 Budget projections show the ten year shortfall to be $2.0 trillion (It's up to $2.1 trillion in the 2015 MSR.)   Each year the Social Security Trustees put out a report on the status of the trust fund.  In each report, since at least 2005, they have been urging Congress to act in a timely manner in enacted reforms to the program.  The last six reports have all been produced while President Obama has been in office.  As the managing trustees, the Sec. of the Treasury Department has played a key role in coming up with and releasing the trustee's report. In it they spell out what would be required to bring the trust funds into actuarial balance.  The longer we wait to make changes, the larger the adjustments must be.  In the 2005 Trustee Report they showed that an adjustment to the withholding rates of 1.92% would be required.  In the 2014 Trustee Report the adjustment had increased to 2.83%.  So delays have a significant impact on those funding the program.   Actuarial assumptions are key to determining whether the Social Security Trust Funds are adequately funded to meet future demands.  Two of the key assumptions are the number of projected workers contributing to the trust funds and the number of beneficiaries drawing benefits from the funds.  Those figures are found in Table IV.B2 of the Trustee's report.  There has been a significant change in the assumptions shown in the table since the 2005 report.  In the 2005 report the increase in beneficiaries exceeded the increase in contributing workers by 16.4 million from 2005 to 2080.  In the 2104 report it had changed so that the increase in workers exceeded the increase in beneficiaries by 7.2 million over the same period of time.  That a change of 23.6 million and takes a deficit in contributing workers to a surplus.  From 2005 the estimate of covered workers for 2080 has been increased by 15% while the estimate of beneficiaries for 2080 has gone up by 6%.  What's caused that significant change in actuarial assumptions, especially during a period when the number of actual covered workers have been falling below prior actuarial projections.   We hear from both Democrats and Republicans that full benefits can be paid by the program for the next 20 years or so.  But is that really the case?  The Social Security trust funds have in excess of $2.5 trillion in them.  However, the funds in them are in the form of special government IOUs.  The IOUs are not marketable securities, but must be repaid by the General Fund.  Since the current projections show budget deficits from 2014 to 2024 the continued ability of the General Fund to sell additional treasury notes and bonds is essential to the continued payment of Social Security benefits.    Democrats often tell us that the Social Security program is the federal government's most successful program.  That brings into question how we should define success.  Is it based on the impact it has in beneficiaries' lives or on the lives of those who are contributing into the program.  The impact is much different.  In 2014 I created a schedule which shows the annual contribution rates and the earning limits.  From this I calculated the annual maximum calculation and the life time contributions if one were to have contributed the maximum amount each year over a 40 year career.  It clearly shows that what started off as minor contribution ($60 maximum per year) has become a major drain on the resources ($14,508 maximum per year) of someone contributing to the program.   (I'm often criticized for showing both the employee contribution and the employer contribution in calculations.  Having spent many years helping organizations create budgets I know that they look at salaries and benefits as a percentage of revenue in the budget process.  So as their contribution to the Social Security program (an employee benefit) has increased, the amount they have available to pay in salaries has decreased.  So its important to look at both portions when determining the impact the program has had on employees.)   Many people claim the Social Security program is nothing more than a Ponzi scheme.  Democrats refute that, but say its based on "Pay As You Go" principle.  In 1982 the Trust Fund balance was $12.5 billion (average of $112 per worker) of the $1,144 billion in contributions.  And less than 15% of the liability in 2014 was actually funded (all in IOUs from the General Fund).   Many Democrats are on record claiming that there is no current crisis and we can wait until the problem develops.  One issue with that has been that the actuarial assumptions have proved to be inadequate over the years.  In the 2005 Trustee Report we were told that the trust funds would last 36 years or until 2041.  In the 2014 Trustee Report we were told the trust funds would last 19 years or until 2033.  So in 9 years we've gotten 17 years closer to the point the trust funds are projected to run out of funds.  That's nearly two years closer for ever one year that has elapsed.  If that trend continues the trust funds may only last another nine to ten years.   Important Schedules and Letters on Social Security: Social Security Trustee Findings Social Security in the WH OMB Budgets Social Security Response from Treasury Letter to Sen. Durbin Letter to Sen. Sherrod Brown Asking AARP & AMAC for Help Social Security "Crisis" Package (from 2013) Is There a Crisis Flier A Video on the Impact of Social Security: Social Security:     http://www.youtube.com/watch?v=tBkG2fuftPQ