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May 16, 2011

Putting It In Context

From Dean Baker, Co-Director of the Center for Economic and Policy Research, writing at the Huffington Post:
There was both good news and bad news in the Social Security trustees' report released last week. The bad news is that the program is projected to cost somewhat more in the latest report than in the 2010 report. ...
This bad news about the program is also the good news. The main reason that the program's finances deteriorated between the 2010 report and the 2011 report is that in the 2011 report the trustees assumed that we would enjoy substantially longer life expectancies than they did in the 2010 report.
They increased their projected life expectancy for men turning age 65 in 2010 from 18.1 years to 18.6 years, a gain of 0.5 years. The trustees increased their projected life expectancy for women turning age 65 by 0.3 years. ...
Even accepting the 2011 report at face value the picture is hardly as dire as many politicians in Washington are claiming. We have seen much worse before. For example in 1997, the trustees projected a shortfall that was equal to 2.23 percent of payroll. At that time, their projections showed the trust fund first being depleted in 2029. ...
It is also important to keep the Social Security numbers in context. Proponents of cuts to Social Security have spent fortunes on pollsters and focus groups trying to put the program's finances in the most dire possible light. They are fond of reporting things like the program's $17.9 trillion shortfall over the infinite horizon. ...
The vast majority of this $17.9 trillion shortfall comes in years after 2200. Social Security does have a long planning period, but if anyone thinks that we are actually making policy for the 24th century then we should keep this person far removed from the levers of power. ...
The best way to make the size of the projected Social Security shortfall understandable is to put it in context. Relative to the size of the economy, the projected Social Security shortfall is equal to 0.7 percent of GDP. By comparison, annual spending on the military increased by more than 1.6 percentage points of GDP between 2000 and 2011. So the burden imposed by the wars in Iraq and Afghanistan are almost 2.5 times larger than the money that would be needed to eliminate the Social Security shortfall. ...
To take another point of reference, the Congressional Budget Office's analysis of the Ryan Medicare privatization plan implied that it would increase the cost of buying Medicare-equivalent policies by more than $34 trillion, a sum that is almost five times as large as the projected Social Security shortfall.

4 comments:

  1. From the perspective of new cash that must be raised when the trust fund is tapped, the actual cash shortfall is much higher than the accounting shortfall.
    Which is more meaningful?
    Don Levit

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  2. Was the decrease in the employee portion (2%) included in the 2010 report or is that also causing a difference between the 2 reports. When do the reports project the 2% reduction will go away?

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  3. Anonymous,

    The 2% cut in payroll taxes is for 2011 only. It might be extended, but the current law ends it after this year, so that's what the projections would assume. Also, the drop in revenue is compensated for by transfers from the general fund of the Treasury, so there is no effect on Social Security.

    Also, Dean Baker (the author of the article being quoted) is good . I read him every morning at

    http://www.cepr.net/index.php/beat-the-press/

    (about economic reporting in general, not just Social Security).

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  4. This comment has been removed by a blog administrator.

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