There will be much hysteria and flapping of gums today about what CNN and other news outlets will undoubtedly label "the coming insolvency of Social Security" or the equivalent, as the annual Social Security and Medicare Trustees' reports are relased this afternoon. You will hear the word "unsustainable" a lot. Here's the truth, though - while Medicare needs some action soon, and will get it as part of health care reform, the retirement system is NOT in immediate trouble, and may not be in long term trouble. And the right-wing's definition - and I include Pete Peterson and David Walker in that category because they have both been campaigning against Social Security for 30 years - of "trouble" for Social Security should not be accepted as any actual version of the truth. The truth about Social Security follows below the fold - and there is an excellent post by John Lind at Salon that says many of the same things, so here's a link to that as well - http://www.salon.com/...
There are three Social Security trust funds - one for OASI, the retirement fund; one for DI, the disability fund, and one for HI, the Medicare fund. Reporters will conflate all three and talk breathlessly about "unsustainable entitlements". However, you must look at the three programs separately to get an accurate picture.
The report for HI will continue the trend of the last few years, namely pointing out increasing outlays because of higher medical costs, and the need for either restraining costs or increasing revenues. The Obama Administration quite rightly has continued to stress that health care reform has to include controls on increasing costs in health care, because that is what's driving Medicare's financial difficulties.
The DI report is likely to be worse than it has been for a few years, because the economic downturn has a double whammy effect on DI - it worsens the immediate revenue intake as the payroll tax is applied to less payroll because of unemployment, and it drives up applications for DI as people with serious impairments simply can't get work in a terrible job market, and turn to Social Security disability. The DI fund therefore may need some financial shoring up, but the dimension of that increase is not likely to be very great.
The report for OASI, that is old age and survivors' insurance, will probably show lower surpluses over the next few years, because of the dramatic rise in unemployment, and the date when trust fund bonds will have to drawn on to pay benefits may be accelerated by a few years from last year's date of 2018. The ultimate date when trust funds might be depleted, and we would only have enough revenues coming in to pay 70-75% of promised benefits may also be moved up a few years, from 2042 in last year's report. But let's put those dates in perspective - in the Trustees' Reports in the late 1990's, the funds were supposed to stop running surpluses in 2012, and the trust funds would be exhausted by 2029. That changed a few years later to the years the report has stuck with for the last 5 years - 2018 and 2042.
Update: The reports have just been released - here's the link to the Social Security website with a brief summary of the reports - http://www.ssa.gov/... The revision of these dates is 2016 for the cessation of yearly surpluses, and 2038 for ultimate exhaustion of the trust funds, at which point annual revenues would be enough to pay about 75 percent of benefits. I haven't read the whole report yet, so I don't know yet how much of these changes are because of the DI fund as opposed to the OASI fund.
Second update: Here's the summary money quote from the Trustees:
Under the long-range intermediate assumptions, annual cost will begin to
exceed tax income in 2016 for the combined OASDI Trust Funds. The combined
funds are then projected to become exhausted and thus unable to pay
scheduled benefits in full on a timely basis in 2037. The separate DI Trust Fund, however, is projected to become exhausted in 2020.
For the combined OASDI Trust Funds to remain solvent throughout the 75-
year projection period, the combined payroll tax rate could be increased during the period in a manner equivalent to an immediate and permanent
increase of 2.01 percentage points, benefits could be reduced during the
period in a manner equivalent to an immediate and permanent reduction of
13.3 percent, general revenue transfers equivalent to $5.3 trillion in present value could be made during the period, or some combination of approaches could be adopted.
The OASI fund, without the DI fund combined with it, would be exhausted by 2039.
There are a few important points here.
First, this is a system primarily funded with a dedicated tax - the payroll tax - and the only way to maintain that "dedicated" character is to have a trust fund to which yearly surpluses of revenues over and above what's necessary to run the system can be credited, and then drawn on when necessary. This is what's SUPPOSED TO HAPPEN - and has happened many times before in all three trust funds. In fact, in 1983, the OASI trust fund was practically gone by the time we enacted the 1983 financing legislation - we are NOWHERE near that point right now, and may never be. You will hear lots of talk about the trust funds "not really existing" - hogwash. They are dedicated government bonds, every bit as real as any other type of government bonds, and cashing them in, just a bit at a time, would not have any impact on the overall government budget if we had not had Bush's disastrous war and run up in the debt over the last eight years, in addition to the recent demands of the bailout of the financial industry. Lind's headline on his Salon piece is exactly right - does any Democrat seriously think it's a good idea, in policy or in politics - to cut Social Security benefits to in effect pay for the banker bailouts and bonuses?
Second, Social Security costs are NOT "out of control" - they are exactly what demographers and actuaries have been projecting for years. Social Security does not spend too much - in fact, benefits are too low for most low and moderate income workers who get less than $1000 a month in benefits. All the talk you will hear about "unsustainable" has nothing to do with Social Security benefit expenditures - it is simply that payroll tax revenues under the current structure may not be able to continue exceeding outlays the way they have in the past decade. Proposals to cut Social Security benefits by raising the retirement age or changing the benefit formula are not just unnecessary - they would cause real suffering both in the short and long term for the elderly who already get lower benefits from Social Security than other industrialized countries provide for their elders.
Third, the long run deficit may or may not materialize - it all depends on the pace of economic growth, and to some extent on working patterns if Americans decide they cannot retire at 62 because their other sources of retirement income have disappeared. But even if it does, the shortfall is far from dire, and would require relatively modest measures to fix - increasing the wage cap, or putting more non-payroll tax revenues into the system would be relatively painless steps we could take to cover the about 1 percent of GDP necessary. Let me repeat that - we're talking about 1 percent of GDP over 75 years - that is not an emergency, it's a relatively minor problem. By the way, Social Security already gets substantial funding from non-payroll tax sources - the revenues from income taxation of Social Security benefits goes into the trust funds, as does the Federal government's employer share of payroll taxes for Federal employees. So increasing the "general revenues" source of financing would not break any ground.
Why all the hysteria? This is all part of a continuing right wing campaign against Social Security that was crystallized about the time the 1983 Amendments, that resolved the financing crisis then, were enacted. There was a famous memo (Lind talks about this in his Salon piece) that laid out the groundrules for an unrelenting Republican and right wing war on Social Security. The Heritage Foundation, the Cato Institute, and the Concord group, funded with Peterson's money, have been very successful in defining the problem in imaginary and horrible ways, in order to incite panic on the part of the public, while giving right wing politicians an opening to cut programs they have hated and fought against since 1935.
The Democrats - and I'm talking to you, Steny Hoyer - would be insane to play into this. I think the Administration has so far been right to emphasize getting Medicare on a better track - but we need to help re-frame the Social Security retirement part of the issue.
Here's my suggestion: Social Security benefits currently provide the bare minimum of income support for the elderly. We need more Social Security, not less, and if payroll taxes prove inadequate, then we need other sources of financing (perhaps a dedicate estate tax, as the late Robert Ball, long time Social Security commissioner, suggested, or other dedicated funding) to make up the difference.
What we DON'T need is to reduce the only secure source of old age income for American workers at a time when their employer provided pensions have disappeared, and their 401(k) balances have been cut in half or worse. Do not let the fear mongers - and this includes the TV media who love a disaster story and will do all they can to hype this story with the help of the Peterson people - win on this. Social Security is the people's program - it's OUR program - and we cannot let the right wing undermine the most successful social program we have. The answer to those wringing their hands about today's reports is - calm down and work on health care reform. We can develop more revenue sources for Social Security when it is clearer that the program needs them - but that time is not today, this week or this year.