The Roman Emperor, Nero, is reputed to have “fiddled while Rome burned.” Historians may well say something similar of Presidents Bush and Obama.
On May 3, 2001, President Bush called for Social Security reforms. He appointed a 16- man commission (8 Republicans and 8 Democrats) to make to recommendations to insure the solvency of the System.
Though the committee was to be co-chaired by Sen. Daniel Patrick Moynihan (D-NY. Ret’d), President Bush was instantly assailed for creating a “commission with a "skewed mandate and one-sided membership." In the face of intense vitriolic Democratic criticism,
President Bush “punted.” His successor, rather then fielding the “punt” has not even taken the field.
President Obama, rather than acting to fix Social Security and Medicare, has devoted
his energies to creating a third huge entitlement: “Obamacare.”
In April of 2012, the Trustees issued their 2012 ANNUAL REPORT ... OF THE
FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND FEDERAL DISABILITY
INSURANCE TRUST FUNDS. To understand the report, you first need to understand
how Social Security is set up.
Social Security has two trust funds:
(1) Old-Age and Survivors Insurance (“OASI.”). This program pays monthly benefits to retired workers, their families, and survivors of deceased workers.
(2) Disability Insurance (“DI.”). This program pays monthly benefits to disabled workers and their families.
The two components when taken together are referred to as “OASDI,” or Old-age,
Survivors and Disability Insurance.
At the end of 2011, the OASDI program was providing benefits to about 55 million people:
• 38 million retired workers and dependents of retired workers.
• 6 million survivors of deceased workers.
•11 million disabled workers and dependents of disabled workers.
Total expenditures in 2011 were $736 billion.
Total income in 2011 was $805 billion:
• $691 billion in non-interest income (payroll taxes + general fund transfers).
• $114 billion in interest earnings.
Social Security also holds assets of $2.7 trillion in special issue U. S. Treasury securities (IOUs). Even if Social Security had no income, those assets would be sufficient to cover current expenditures ($736 billion per year) for just under 4 years.
The 2011 expenditures of $736 billion exceed the non-interest income of $691 billion by $45 billion. That shortfall was occasioned by President Obama’s “Payroll Tax Holiday” --even though payroll tax reduction law required the General Fund “replicate” the lost payroll taxes - “to the extent possible.” That “replication” was $45 billion short.
The trustees report runs 247 pages, with many appendices. Here are key excerpts from TABLE VI.F7 -- Operations of the Combined OASI and DI Trust Funds, in CPI - indexed 2012 Dollars (in Billions), Calendar years 2012 -2090.
Intermediate Cost Estimates:
Calendar year Total Income Cost Assets at End of Year
2012 $846.0 $788.7 $2,735.2
2016 $952.8 $910.2 $2,678.2
2021 $1,082.5 $1,088.9 $2,463.4
2025 $1,146.3 $1,250.6 $1.950.3
2030 $1,174.8 $1,442.7 $724.4
Under the Intermediate Cost Estimates the combined fund assets are exhausted in 2033.
High Cost Estimates:
Calendar year Total Income Cost Assets at End of Year
2012 $837.6 $791.4 $2,724.1
2016 $880.7 $917.4 $2,367.1
2021 $959.5 $1,100.1 $1,556.8
2025 $958.9 $1,249.2 $460.4
Under the High Cost Estimates the combined fund assets are exhausted in 2027.
“Total Income” has two components: Non-interest Income and Interest Income. Non-interest income consists of payroll tax contributions, income from taxation of benefits, and reimbursements from the General Fund of the Treasury, if any.
“Cost” consists of benefit payments, administrative expenses, financial interchange with the Railroad Retirement program, and payments for vocational rehabilitation services for disabled beneficiaries.
To make an estimate - high, intermediate or low - the trustees make numerous actuarial assumptions. Those include, assumptions about levels of fertility, changes in mortality, legal and other immigration levels, changes in the Consumer Price Index, changes in average real wages, unemployment rates, trust fund real yield rates, and disability incidence and recovery rates.
Bluntly, estimating income that will come into the Social Security System 5, 10 and 15 years down the road is at best an “educated guess.” The same can be said of estimating costs, including the benefit payments, that the system will incur down the road.
But one thing is very clear: when the economy is in recession and people don’t have jobs, payroll tax collections will also be down, which means lower income for the System. A longer than anticipated recession means Social Security assets are depleted sooner.
Private businesses generally estimate revenues (or income) conservatively, while
they generally tend to overestimate costs (or expenses). If the history of our Federal
and State governments tends to show anything, it’s that the government does things
backwards. Government tends to overestimate revenues, and underestimate costs.
Look what the Congressional Budget Office is now telling us about Obamacare. For
that reason, the trustees’ High Cost Estimate may not be high enough.
By the way, this report was not prepared by Republicans hacks. The Social Security Act established a Board of six Trustees. At least three are Democrats: Timothy F. Geithner, Secretary of the Treasury, Kathleen Sebelius, Secretary of Health and Human Services, and Hilda L. Solis, Secretary of Labor.
It must be noted that the fact that the fund’s assets will be exhausted either in 2027 or 2033 doesn’t mean Social Security will quit paying altogether. But if costs exceed total income by, say, 25%, then benefits will have to be reduced by 25% — unless total income is somehow increased, or the the eligibility age is raised.
Procrastination will not make the fix any easier
First Published in the Moline Dispatch, June 13, 2012.
Copyright 2008, John Donald O'Shea
by John Donald O'Shea
Copyright 2012, John Donald O'Shea
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