Priceman touched on the Three Alternatives today: Intermediate Cost, supposed to be the most probable outcome, more optimistic Low Cost, and more pessimistic High Cost. This post proposes to put some numbers to those alternatives and in passing show why targeting 75 year Solvency (as both the Ryan Budget and the new Durbin Commission proposal do) is lunacy. All of the Tables come from the 2012 Annual Report of the Trustees of Social Security: List of Tables.
Second, and as variously pointed out by Roger and Priceman in previous posts, Low Cost arithmetically projects a fully funded Social Security system, that is 100% of scheduled benefits with no changes in cap formula or retirement age.
Third, and as pointed out by Priceman and to be the subject of an important post by Guest Blogathon Poster Economist Dean Baker, the productivity and real wage numbers of Intermediate Cost are well below historical trend. And while commenters views might vary, I don't see the Low Cost counterparts as unreachable. At all. Particularly if we consciously targeted proposals to increase wages and lower unemployment. For example a return to late Clinton Admin numbers blows all this right out of the water and Social Security actually projects to OVER fund.
More numbers below.
Now in the normal course of events the only one of these data points normally reported is combined OASDI over 75 years under Intermediate Cost assumptions. And under both the Ryan Roadmap and the new Durbin Commission we would be locked into that particular data point, at best being able to readjust policy every ten years or so. That is we are essentially told that Social Security HAS a 2.67% 75 year negative Actuarial Balance and that we will be REQUIRED to propose policy to address every bit of that RIGHT NOW.
Well not so quick Mon Frere Durbin, why not target the 25 year number? Not least because the probability range from Low Cost to High Cost is a positive 0.38% to a negative -2.25% with Intermediate Cost at -0.92. Why not propose a 1.00% of payroll fix and then see how we are faring in five or ten years? Maybe while targeting economic numbers that would actually get us closer to that fully funded Low Cost result? Why on Earth would Democrats NOT want to target 4.5% unemployment and 1.75% real wage? And 2.0% productivity? That would get us a long way towards 75 year solvency even as an immediate 1.00% of payroll fix (say by modifying the cap formula) acts as an insurance policy.
Or we could drill down. The Disability Insurance program has been in the news a lot this weeks and an examination of Table IV.B4 shows us why: fully a third of the OASDI 25 year actuarial gap is due to the 0.39% deficit in DI. On the other hand the gap never projects to get worse under Intermediate Cost assumptions and there is even a chance that DI in fact self repairs by 2036 to a positive 0.03% under Low Cost. Since if we really drilled down we would see that DI is underfunded today while OAS is still in 10 year balance by quite a margin, a reasonable policy proposal would be to implement a FICA based fix (across the board increase or cap modification) equivalent to 0.4% of payroll and devote that entirely to DI. BOOM, DI immediately achieves 75 year solvency. Meanwhile we could take a closer look at the variables that differentiate that 0.39% 25 year gap under IC and the 0.03% surplus under LC and target policy accordingly.
That is there are many, many more policy options available to us beyond locking into 75 year OASDI Intermediate Cost modeling. But unless someone exposed you to the actual numbers and variations as revealed in the detailed Tables you wouldn't have a clue.
Consider yourself exposed. And for those who dare more contagion below the photo (for extra credit ID the onlookers. Cheaters can consult the SSA.gov/history site where I stole the picture)
See how much fun this can be? And people laugh at me for having pored through these data tables each year since 1997. (Well okay, it IS kind of a weird hobby).