Apr 23, 2012

Trustees Report

     From a Social Security press release:
The Social Security Board of Trustees today released its annual report on the financial health of the Social Security Trust Funds.  The combined assets of the Old-Age and Survivors Insurance, and Disability Insurance (OASDI) Trust Funds will be exhausted in 2033, three years sooner than projected last year.  The DI Trust Fund will be exhausted in 2016, two years earlier than last year’s estimate.  The Trustees also project that OASDI program costs will exceed non-interest income in 2012 and will remain higher throughout the remainder of the 75-year period.
In the 2012 Annual Report to Congress, the Trustees announced:
  • The projected point at which the combined Trust Funds will be exhausted comes in 2033 – three years sooner than projected last year.  At that time, there will be sufficient non-interest income coming in to pay about 75 percent of scheduled benefits.
  • The projected actuarial deficit over the 75-year long-range period is 2.67 percent of taxable payroll -- 0.44 percentage point larger than in last year’s report.
  • Over the 75-year period, the Trust Funds would require additional revenue equivalent to $8.6 trillion in present value dollars to pay all scheduled benefits.
     The actual report isn't available online at this point but is supposed to be here later. The press release makes no mention of the disability trust fund. The status of that fund is of much more immediate importance than the status of the retirement trust fund.

     Update: The report projects that the Disability Trust Fund will be exhausted in 2016, the same as last year's projection.
     Here's some headlines R.J. Eskow says you will NOT see, but should, in reporting on this:
  • "Social Security Trust Fund Even Larger Than It Was Last Year"
  • "Growing Wealth Inequity Will Lead to Social Security Imbalance Later This Century"
  • "For-Profit Healthcare Poses Threat to Medicare, Federal Deficit, and Overall Economy in Coming Decades"
  • "Public Consensus Grows For Taxing Wealthy to Restore Long-Term Entitlement Imbalance"


Anonymous said...

Well it's- the report- out and the 4PM Lead Story NPR Hourly News includes citing that the DI costs have exceeded non-interest income since 2005, and the Trustees project trust fund exhaustion in 2016, two years earlier than projected last year. And that congress must act soon.

This is just what makes the sky fall. Acting in my opinion, would be to hold the system accountable for consistency - see previous post and instead of CDR, just make benefits time limited. The myth that CDRs save 10 times the amount they cost is folly. If lawmakers need to act - fund the agency to implement a scheme for reviewing all benefits.
Oh and get ready for the WSJ and attacks on ALJs, Reps and markedly defunding the whole DIB program. That is what the Republicans want anyway.

Don Levit said...

The importance of not including interest income in cash flow projections cannot be discounted.
Interest income is generated from general revenues of the Treasury, and thus increase intragovernmental debt.
This is why the trust fund can be growing, yet, at the same time, have a negative cash flow balance.
I am glad anonynmous wrote about the DI trust fund deficit since 2005, by excluding interest income from the cash flow equation.
Don Levit

JP said...

Bruce Krasting has attacked the assumptions used:

"The SSTF creates Best, Base and Worst case scenarios for 2012 through 2021. The Base-case is for SS to run an $800B cash deficit for the period. The Worst-case analysis is for a $1.8 Trillion cash shortfall. I’m firmly convinced that the Worst-case is most likely.


-The critical assumptions used to develop SSTF’s assessment of the future include:

i) CPI will average only 2% in years 2012 – 2015. From 2015 – 2021 inflation will average 2.5%. Utter hogwash.

ii) Real GDP will average 3% a year for the next decade. There will be no recessions according to the TF. More hogwash.

iii) The TF uses these estimates for Real GDP:

2012 – 2.6%
2013 – 2.9%
2014 – 3.5%
2015 – 4.0%
2016 – 3.8%

These results simply will not happen. Is the SSTF not aware that the USA will face the biggest cut backs in spending, and the largest increases in taxes in the country’s history, eight months from today?"

JP said...


Anonymous said...

Here is another perspective on how the sky isn't quite falling yet. essentially we just need to make some tweaks like Ronald Reagan and Tip O'Neill did in the 1980's.


Social Security’s projected long-range funding gap could be eliminated without cutting benefits, which are modest in size, yet crucial. Congress could eliminate Social Security’s entire projected shortfall, which amounts to around 0.8 percent of Gross Domestic Product (about the size of the Bush tax cuts going to the top two percent of the population), by raising the Social Security tax cap so that the 6 percent of workers who make more than $110,100 a year pay taxes on all of their wages, just like everyone else who makes less than that amount. This would guarantee full payment of Social Security benefits for the next 75 years and beyond. There are many other ways to address the projected shortfall without cutting benefits which are already very modest, averaging just $14,781 a year for retirees – less than is paid in a year of minimum wage work, yet vitally important. Two-thirds of seniors rely on Social Security for half or more of their incomes. The benefits are also vitally important to children and spouses of deceased workers, to workers who have sustained permanent and serious disabilities and to their families.

Anonymous said...

Talk about a blatant example of money printing...

"Congress has lowered the payroll tax that funds Social Security since 2011 to spur economic growth, and the Treasury Department has made up the lost revenue by essentially making payments into the Social Security funds."

Seriously...the Treasury Department put real money back into the fund?

Don Levit said...

Anonymous at 10:23
When you speak of closing the funding gap, what are you referring to?
Are you saying the trust fund will never go to zero?
As I posted above, there is a funding gap right now - a cash shortfall. How much more real can you get?
According to a paper entitled "Status of the Social Security and Medicare Programs, A Summary of the 2011 Annual Reports," published by the Social Security Administration:
Page 1 "Social Security's expenditures exceeded the program's non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow."
Do you agree that paying dollars from the Treasury's General Fund is the same way we fund all expenditures, for example, Medicaid?
The trust fund no more represents a store of wealth than any other pay-as-you-go expense paid from the Treasury's General Fund.
Don Levit

Anonymous said...

The trust fund balance is continuing to grow, in spite of reduced FICA contributions and increased expenditures. The baby boom generation was anticipated in the last overhaul of trust fund financing, and the trust fund has been building a huge reserve which gets bigger every day. The resulting interest income is real income to the trust fund.

Nobody would buy savings bonds or any US Treasury bond without getting interest. Interest is an integral part of the borrowing process when the government has a deficit. For some reason, this interest which is due and payable to the trust fund is now discounted as if it is an accounting gimmick.

Of course interest payments come from general revenues. The majority of US debt is not held by the SS trust fund, and interest is paid out for all kinds of US debt, such as the bonds held by the Federal Reserve. The Fed, private corporations, and individuals, all receive interest on US Treasury bonds and no one claims that it doesn't count as income.

No one can argue with the fact that the government has a huge debt and continuing deficits, but it has never defaulted on its loan payments or failed to pay interest. The interest obligations contribute to the imbalance in general government funding regardless of who it is paid to, and it is not fair to single out SS and claim that the interest doesn't count as income. SS is not responsible for the larger general government debt and the facts should not be twisted to make it sound like it is.

Don Levit said...

The principal and interest were supposed to be kept intact, through special issue Treasuries, reserved solely for Social Securitry beneficiaries. Instead, these excess dollars were spent on real expenses and lowered real deficits.
Instead of being a trust fund with huge pre-paid cash reserves, it is merely a hollow artifact of its prior self, an accounting mechanism detailing what can be drawn from the Treasury without an appropriation.
I am not saying that the fund is not due to be paid back from the Treasury - it is.
I am simply saying that paying the fund back is the same way government pays all pay-as-you-go expenditures, like battle ships and Medicaid - out of new general fumd revenues. To imply there is no cash shortfall until trust exhaistion is incorrect. Even the trustees report says there is a cash shortfall now, has been since 2010, and is estimated to continue to worsen until trust fund exhaustion.
If those special issue Treasuries had been kept intact for Social Security beneficiaries, instead of paying for other expenses over the years, we would indeed have huge cash surpluses.
All we have now is huge accounting surpluses. And, the federal budget is run on a cash vasis, accounting wise.
Don Levit